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On Tuesday, Redburn-Atlantic moved to a more favorable view on Yum! Brands (NYSE:YUM) stock, raising its rating from Neutral to Buy and increasing the price target to $177.00, up from the previous $145.00. The upgrade reflects the analyst’s optimism about the company’s growth prospects and strong financial position. With a market capitalization of nearly $40 billion and an overall financial health score rated as "GOOD" by InvestingPro, the company has demonstrated solid fundamentals, including a 10% revenue growth over the last twelve months.
Chris Luyckx of Redburn-Atlantic highlighted Yum! Brands’ robust international presence and the exceptional performance of Taco Bell as key drivers of the company’s success. According to Luyckx, the combination of Yum! Brands’ defensive resilience and its potential for growth makes it a standout in the market. The analyst pointed out that KFC International and Taco Bell US are significant contributors to the company’s earnings before interest and taxes (EBIT), representing nearly 80% of the system’s EBIT. The company’s strong market position is reflected in its impressive 47% gross profit margin and 22% return on assets.
The analyst also noted Yum! Brands’ strategic initiatives, such as its digital acceleration program known as Byte, its varied restaurant formats, and a strong master franchise system, which are expected to bolster the company’s growth trajectory. These factors, along with the company’s valuation, which Luyckx considers attractive relative to its fundamentals, contributed to the positive outlook.
Yum! Brands currently trades at a multiple of 23.6 times its estimated 2025 earnings per share (P/E), but Redburn-Atlantic argues that the quality of earnings today is substantially better than what the multiple suggests. The new price target of $177 implies a multiple of 28.7 times future earnings, indicating the analyst’s confidence in the company’s ability to grow its earnings at a significant rate. InvestingPro analysis suggests the stock is currently trading near its Fair Value, with analyst targets ranging from $140 to $185. InvestingPro subscribers can access additional insights through comprehensive Pro Research Reports, which provide deep-dive analysis of YUM and 1,400+ other top stocks.
Investors in Yum! Brands can look forward to the company’s continued expansion and innovation, particularly with Taco Bell’s contribution to profitability and the overall strength of Yum! Brands’ international operations. The raised price target and upgraded stock rating reflect a belief in the company’s capacity to maintain high-growth and high-margin segments, which are expected to drive its financial performance forward. The company has maintained dividend payments for 22 consecutive years, with a current dividend yield of 2%, and has shown consistent dividend growth of 6% over the last twelve months.
In other recent news, Yum! Brands reported its first-quarter 2025 earnings with an earnings per share (EPS) of $1.30, slightly surpassing the forecast of $1.28. Despite the positive EPS, the company’s revenue fell short of expectations, coming in at $1.79 billion compared to the anticipated $1.85 billion. The company continues to see strong growth in Taco Bell and KFC, with Taco Bell achieving a 16% increase in core operating profit and KFC seeing a 9% rise. Meanwhile, Pizza Hut’s performance was hindered by strategic store transitions, resulting in a 2% decrease in sales. JPMorgan analyst John Ivankoe has raised the price target for Yum! Brands to $170, maintaining a Neutral rating, as Taco Bell’s same-store sales exceeded expectations. Additionally, Yum! Brands announced a quarterly cash dividend of $0.71 per share, scheduled to be paid on June 6, 2025. These developments reflect Yum! Brands’ ongoing efforts to return value to shareholders while navigating mixed financial results.
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