Bernstein reiterates Market Perform rating on Yum! Brands stock

Investing.com - Bernstein has reiterated its Market Perform rating and $145.00 price target on Yum! Brands (NYSE:YUM), which currently trades at an EV/EBITDA multiple of 18x, following the company’s second-quarter results that marginally missed investor expectations. According to InvestingPro analysis, the stock is currently fairly valued based on its proprietary Fair Value model.

The restaurant company reported same-store sales growth of 4% at Taco Bell versus consensus expectations of 5%, while KFC International posted net unit growth of 5% and same-store sales growth of 2% compared to consensus estimates of 5.5% and 2.2% respectively. The company maintains strong profitability with a 46.8% gross margin and has demonstrated consistent financial health, earning a "GOOD" overall rating from InvestingPro.

Despite these slight misses, Bernstein noted Taco Bell’s resilience, highlighting that the chain has grown same-store sales every quarter for five consecutive years despite challenging macroeconomic conditions and difficult year-over-year comparisons. The company’s stability is further evidenced by its 22-year streak of maintaining dividend payments, with a current dividend yield of 2.04%.

Yum! Brands reiterated its guidance of 8% adjusted operating income growth for the year, with double-digit growth expected in the fourth quarter. This implies an acceleration in same-store sales growth in Q4, driven by planned menu innovation at Taco Bell and Pizza Hut, though Bernstein cautioned about intensified menu competition in the quick-service restaurant space during the second half of the year.

The company appears on track to open 4% net new units in fiscal year 2025, with over 90% pipeline visibility for FY25-26, and potential upside to unit growth in FY26 from progress in Turkey markets.

In other recent news, Yum! Brands reported its second-quarter earnings, revealing an earnings per share (EPS) of $1.44, which was slightly below the forecasted $1.46. The company’s revenue came in at $1.93 billion, missing the expected $1.94 billion. These results led to a sense of investor disappointment due to the minor earnings miss. Additionally, Wells Fargo (NYSE:WFC) lowered its price target for Yum! Brands to $155 from $160, maintaining an Equal Weight rating, following the company’s second-quarter earnings miss. The fast-food giant’s global comparable sales growth of 2% fell short of Street expectations and represented a slowdown compared to the first quarter. Taco Bell, a part of Yum! Brands, delivered 4% comparable sales growth, driven by offerings such as Crispy Chicken and Refrescas. Evercore ISI also reduced its price target on Yum! Brands to $165 from $170, citing anticipated higher near-term overhead expenses. Despite these adjustments, Evercore ISI maintained its "In Line" rating for the company.

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