Yum! Brands Faces Challenges as Food Industry Stagnates
Underperformance Compared to Market Peers
Louisville, Kentucky-based Yum! Brands, Inc. (YUM) develops, operates, franchises, and licenses quick service restaurants. Valued at $37.3 billion by market cap, the company prepares, packages, and sells a diverse menu of food items.
Stock Struggles Amid Broader Gains
Over the past year, Yum! Brands has significantly lagged behind the broader market. While YUM shares increased by 5.5%, the S&P 500 Index ($SPX) surged nearly 30.4%. In 2024 alone, YUM saw a modest rise of 2.2%, compared to a robust 23.1% increase in the SPX year-to-date.
ETF Outperformance Indicates Wider Issues
Narrowing the focus, YUM stock also trails the AdvisorShares Restaurant ETF (EATZ), which has gained about 36.9% over the past year. Additionally, the ETF outpaced YUM with year-to-date gains of 24.5% compared to single-digit returns for the company.
Broader Economic Factors at Play
In 2024, YUM encountered several challenges as the restaurant industry faced headwinds and consumers became more budget-conscious. The rise of GLP-1 drugs, which may impact fast-food purchases, also contributed to these struggles.
Recent Earnings Report Falls Short
On November 5, YUM shares rose over 1% following its Q3 results. However, the company reported an adjusted EPS of $1.37, which fell short of Wall Street expectations of $1.41. Revenue for the quarter was $1.8 billion, also below the forecast of $1.9 billion.
Future Projections and Analyst Ratings
Looking ahead, analysts anticipate that YUM’s EPS will grow by 6% to $5.48 on a diluted basis for the current fiscal year ending in December. Historically, YUM has struggled with earnings surprises, missing consensus estimates in three of the last four quarters and falling short by 2.8% in the previous quarter.
Among the 27 analysts covering YUM stock, the consensus rating is “Moderate Buy,” supported by seven “Strong Buy” ratings, one “Moderate Buy,” and 19 “Holds.”
Analyst Outlooks Bring Mixed Signals
This outlook has become less optimistic compared to a month ago, when eight analysts recommended a “Strong Buy.” On November 5, Robert W. Baird analyst David Tarantino maintained a “Buy” rating on YUM, setting a price target of $154, indicating a potential upside of 15.3% from current levels.
The mean price target stands at $144.09, reflecting a premium of 7.9% over YUM’s current price. Notably, the highest price target among analysts of $158 suggests an even greater upside potential of 18.3%.
On the date of publication, Neha Panjwani did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
