Where Will Yum Brands Go Post-Earnings?

With shares of Yum Brands (NYSE:YUM) trading around $72, 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.

Yum Brands Monday reported results for the fourth-quarter ended December 28, 2013, including EPS growth of 4 percent, or $0.86, excluding Special Items. Reported EPS was $0.70 for the quarter and $2.36 for the year. David C. Novak, Chairman and CEO said, “While 2013 was a challenging year, I’m pleased to report continued progress as we enter 2014 with fourth-quarter EPS growth of 4 percent, excluding Special Items. More importantly, with the decisive actions we’ve taken to strengthen our company across the board, we are well positioned to deliver double-digit EPS growth in 2014 and the years ahead.”

T = Technicals on the Stock Chart Are Mixed

Yum Brands stock has been trading sideways over the last couple of quarters. However, the stock is currently surging higher and looks poised to continue. 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 between its rising key averages, which signal neutral 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

22.85%

0%

0%

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

Put IV Skew

Call IV Skew

March Options

Average

Average

April Options

Average

Average

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

2013 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

-3.62%

-67.00%

-11.59%

-25.00%

Revenue Growth (Y-O-Y)

0.63%

-2.89%

-8.33%

-7.58%

Earnings Reaction

7.63%*

-7.24%

-1.14%

7.01%

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

* As of this writing

P = Weak 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

-5.57%

-3.90%

0.80%

-0.24%

-1.22%

Yum Brands has been a poor relative performer, year-to-date.

Conclusion

Yum Brands owns and operates KFC, Pizza Hut, and Taco Bell restaurants around the world. The company on Monday reported results for the fourth-quarter ended December 28, 2013, which left investors optimistic. The stock has been trading sideways, but is currently surging higher. Over the last four quarters, earnings have been decreasing and revenues have been on the rise. However, investors have been optimistic about the company’s recent earnings announcement. Relative to its peers and sector, Yum Brands has been a poor 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.

More From Wall St. Cheat Sheet:

More from The Cheat Sheet