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Investing.com - BofA Securities lowered its price target on Yum China Holdings (NYSE:YUMC) to $56.50 from $60.50 on Monday while maintaining a Buy rating on the stock. According to InvestingPro data, the company maintains a GREAT financial health score and trades at an attractive PEG ratio of 0.94, suggesting reasonable valuation relative to its growth prospects.
The firm noted that Yum China has underperformed the MSCI China index by 16% since Liberation Day, attributing the lag to market reassessment of the company’s long-term growth prospects following its shift to smaller stores and franchising. Despite this underperformance, the company has delivered a 50% total return over the past year and maintains a solid 2.1% dividend yield.
BofA’s channel checks suggest same-store sales growth (SSSG) of 0-1% in the second quarter, with indications that June performance could exceed expectations. The firm also observed more than 10% sequential delivery order growth during the past weekend.
The research note highlighted that Meituan and Alibaba (NYSE:BABA) have begun offering aggressive delivery subsidies, which could support same-store sales growth in the third quarter of 2025, traditionally a peak season for the company.
Despite lowering the price target, BofA maintained its Buy rating on Yum China, citing an improving same-store sales growth outlook for the second half of 2025 and strong yields.
In other recent news, Yum China Holdings reported first-quarter earnings that did not meet analyst expectations. The company posted adjusted earnings per share of $0.77, missing the consensus estimate of $0.80, and revenue came in at $2.98 billion, below the projected $3.17 billion. Despite these results, Yum China achieved same-store sales at 100% of prior year levels for the first time since Q1 2024 and marked its ninth consecutive quarter of same-store transaction growth. Total (EPA:TTEF) system sales increased by 2% year-over-year, excluding foreign currency translation, with a 4% net new unit growth. The company opened 247 net new stores, bringing its total to 16,642. Yum China’s operating profit rose 7% year-over-year to $399 million, with restaurant margins expanding by 100 basis points to 18.6%. In a separate development, UBS raised its price target for Yum China to $59 from $57.26, maintaining a Buy rating. UBS’s analysis suggests significant franchise growth, projecting the potential to reach 30,000 locations by 2030 and highlighting a 12% compound annual growth rate in cash flow from 2026 to 2030. The company plans to return $3 billion to shareholders through 2026, in addition to $1.5 billion delivered in 2024.
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