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On Monday, JPMorgan analyst Kevin Yin adjusted the price target for Yum China Holdings (NYSE:YUMC) stock, bringing it down to $59 from the previous target of $60, while maintaining an Overweight rating on the company’s shares. According to InvestingPro data, YUMC, currently valued at $17.45 billion by market cap, maintains a strong financial health score of GOOD, supported by its solid balance sheet with more cash than debt. Yin’s report anticipates Yum China’s fourth quarter 2024 sales and earnings per share (EPS) to increase by 4% and 12% year-over-year, respectively. This follows a third quarter performance where sales and EPS were up by 5% and 31% year-over-year.
Yin forecasts that same-store sales growth (SSSG) will likely decelerate, shifting from positive numbers during the October Golden Week Holidays to a projected decrease of 1.6% for the fourth quarter of 2024. This trend is attributed to a reduction in demand following the extended holiday period and a generally tepid demand environment, consistent with patterns observed in previous quarters. Despite these challenges, the company has maintained a healthy revenue growth of 5.94% over the last twelve months, with a PEG ratio of 0.9 suggesting the stock might be undervalued relative to its growth prospects. Despite this, Yum China is expected to report its eighth consecutive quarter of store traffic growth, outperforming most other restaurant chains, according to JPMorgan’s analysis.
Yum China’s ability to maintain its profit margins is anticipated to be strong, even in the face of operational leverage challenges due to the SSSG decline. Yin notes that this resilience is likely driven by efficiency gains, rationalized competition, the introduction of K-coffee at KFC locations, and Pizza Hut’s new WOW model.
Looking ahead, JPMorgan is optimistic about Yum China’s long-term prospects, particularly praising its strategy to shift towards a franchisee model. This approach is expected to accelerate growth, reduce capital expenditures, enhance return on equity, and potentially increase returns for shareholders. InvestingPro analysis reveals that management has been actively buying back shares, demonstrating confidence in the company’s future. For deeper insights into YUMC’s valuation and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers. However, due to the revision in SSSG expectations, JPMorgan has reduced its EPS forecast for Yum China in 2024 by 2%.
Yum China is set to report its fourth quarter 2024 results on February 6, after the Hong Kong market closes. Investors will be watching closely to see if the company’s performance aligns with JPMorgan’s projections and whether the strategic initiatives implemented will bolster Yum China’s growth amidst the challenging demand dynamics.
In other recent news, Yum China Holdings has been the focus of several major financial developments. Deutsche Bank (ETR:DBKGn) has adjusted the stock price target for Yum China to $54.30, down from $57.00, while maintaining a Buy rating. This adjustment is based on the company’s solid financial health, attractive P/E ratio, and promising growth prospects. Meanwhile, JPMorgan has upgraded Yum China from Neutral to Overweight, raising the price target to $60.00 from $35.50. This optimistic outlook is driven by the company’s consistent positive traffic growth, improved margins, and expected stock buybacks in the coming years.
In earnings news, Yum China reported a robust performance for the third quarter of 2024. The company’s system sales grew by 4% year-over-year, the core operating profit saw an 18% increase, and diluted earnings per share rose by 32%. Over 1,200 new stores were opened, and the company announced plans to return $4.5 billion to shareholders from 2024 to 2026.
Furthermore, Yum China’s upcoming analyst briefing is expected to offer insights into sales same-store growth trends and the company’s expansion plans. The briefing will also cover the potential for cost savings and details on the full-year capital returns to shareholders, including the share repurchase amount of $360 million for the first half of 2025.
In other company news, China’s recent shift towards a more accommodating monetary and fiscal policy has positively affected companies with significant ties to the country, including Yum China. These are the latest developments in Yum China’s financial trajectory.
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