RBC Capital initiates Yum! Brands stock with Sector Perform rating

Investing.com - RBC Capital initiated coverage on Yum! Brands (NYSE:YUM) with a Sector Perform rating and a $165.00 price target on Wednesday. According to InvestingPro data, the stock currently trades at a P/E ratio of 28.7x, with the company maintaining a solid market capitalization of $40.5 billion.

Analyst Logan Reich at RBC Capital noted that while Yum! Brands presents "an intriguing story," the current risk/reward balance does not justify an Outperform rating at present levels. The company has demonstrated strong financial performance with revenue growth of 11.3% and maintains a GOOD financial health score, according to InvestingPro analysis.

The firm identified Taco Bell US and KFC international as the most critical drivers for the stock, accounting for approximately 80% of Yum!’s operating profit in 2024.

While Taco Bell has outperformed fast-food competitors, RBC believes expectations are elevated, with consensus modeling approximately 140 basis points per year faster same-store sales growth compared to Burger King, McDonald’s, and Wendy’s averages, leaving "little room for error."

For KFC, RBC highlighted concerns about increasing international competition from US brands and noted that KFC China drove 51% of Yum!’s net unit growth in 2024, which is dilutive to average unit volumes.

In other recent news, Yum! Brands announced its intention to refinance approximately $938 million in Taco Bell notes. The company plans to replace these with a new series of $1 billion senior term notes, with proceeds aimed at repaying existing notes and covering transaction expenses. Additionally, Goldman Sachs has reiterated its Buy rating for Yum! Brands, maintaining a price target of $167. Piper Sandler also adjusted its price target for the company, raising it to $157 while keeping a Neutral rating. In leadership developments, Yum! Brands is preparing for Chris Turner to assume the CEO role on October 1, with Sean Tresvant promoted to Chief Consumer Officer while continuing as CEO of Taco Bell. KFC US has appointed Melissa Cash as its new Chief Marketing Officer, effective September 16. These developments reflect Yum! Brands’ ongoing strategic adjustments and leadership changes.

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