Does Yum! Brands Have a Bright Future?

With shares of Yum! Brands (NYSE:YUM) trading around $76, is YUM an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Yum! Brands is a quick-service restaurant company based on a number of system units with approximately 37,000 units in more than 120 countries and territories. The company — through its three main restaurant chains in KFC, Pizza Hut, and Taco Bell — develops, operates, franchises, and licenses a worldwide system of restaurants. These popular food chains prepare, package, and sell a menu of low-priced food items. Convenient and tasty foods continue to rise in popularity worldwide, which allows Yum! Brands to provide food items demanded by consumers.

The CEO of Taco Bell is soon to become the big enchilada — chief executive — of parent company Yum! Brands, it was announced Thursday. Yum!, which also owns fast-food giants Pizza Hut and KFC, said that Greg Creed, 56, who has played a pivotal role in turning-around Taco Bell in recent years, will become CEO of Yum! Brands next year, replacing current CEO David Novak, 61, who will become executive chairman.

T = Technicals on the Stock Chart are Mixed

Yum! Brands stock has been trading sideways over the last couple of quarters. The stock is currently pulling back and may need time to stabilize before heading higher. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Yum! Brands is trading above its rising key averages which signal neutral to bullish price action in the near-term.

YUM

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of Yum! Brands options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Yum Brands options

20.19%

0%

0%

What does this mean? This means that investors or traders are buying a small amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

June Options

Flat

Average

July Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a small amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Yum! Brands’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Yum! Brands look like and more importantly, how did the markets like these numbers?

2014 Q1

2013 Q4

2013 Q3

2013 Q2

Earnings Growth (Y-O-Y)

20.83%

-3.62%

-67.00%

-11.59%

Revenue Growth (Y-O-Y)

7.46%

0.63%

-2.89%

-8.33%

Earnings Reaction

-0.86%

8.91%

-7.24%

-1.14%

Yum! Brands has seen rising earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with Yum Brands’s recent earnings announcements.

P = Average Relative Performance Versus Peers and Sector

How has Yum! Brands stock done relative to its peers, McDonald’s (NYSE:MCD), Wendy’s (NASDAQ:WEN), Jack In The Box (NASDAQ:JACK), and sector?

Yum Brands

McDonald’s

Wendy’s

Jack In The Box

Sector

Year-to-Date Return

0.69%

3.54%

-3.90%

7.20%

2.88%

Yum! Brands has been an average performer, year-to-date.

Conclusion

Yum! Brands owns and operates KFC, Pizza Hut, and Taco Bell restaurants around the world. The CEO of Taco Bell is soon to become the CEO of Yum! Brands. The stock has been trading sideways and is currently pulling back. Over the last four quarters, earnings and revenues have been on the rise which has left investors pleased about recent earnings announcements. Relative to its peers and sector, Yum! Brands has been an average year-to-date performer. WAIT AND SEE what Yum! Brands does in coming quarters.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

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