Yum! Brands Looks Juicy for 2023

Yum! Brands Inc. (YUM) stock has been on a tear since the release of its third-quarter 2022 earnings. Its well-known brands include Taco Bell, KFC, Pizza Hut, and Habit Burger Grill, and it operates over 53,000 locations in 157 countries. Tricon Global Restaurant Inc was spun off from PepsiCo. Inc (PEP) in 1997 and changed its name to Yum! Brands in 2002.

Taco Bell and KFC are its best brands, with sales growth continuing, while Pizza Hut and Habit Burger had revenue declines. During the pandemic, established restaurant organizations with dining rooms such as Darden Restaurants Inc. (DRI), Brinker International Inc. (EAT), and Bloomin’ Brands Inc. (BLMN) suffered losses. Brand fast food restaurants have thrived with drive-through, carryout, and mobile ordering options.

The fast rise in topline experienced at most enterprises’ reopening has now leveled down during the normalization period. Yum has seen little normalization; but, a new normal has emerged as e-commerce and digital sales reach $6 billion, with a digital mix nearing 40%.

The Growth Engine Is Still Running

In the third quarter of 2022, the company opened 979 gross units in 74 countries. In reaction to the Ukraine conflict, it transferred control of its Russian KFC locations to an existing KFC Russia. Their major growth drivers are relevant, accessible, and distinctive brands and their unrivaled culture.

KFC system sales increased by 12%, with same-store sales increasing by 7% and unit sales increasing by 7%. The Middle East market experienced robust growth, with a 46% system sales increase across all channels. Same in India, where its 7-minute Express takeout guarantee has caused a 45% increase in system sales. Africa experienced a 31% increase in system growth.

Taco Bell accounts for 34% of its operating profit, with system sales increasing by 9% and same-store sales increasing by 6% with 5% unit growth. Furthermore, Taco Bell increased foreign sales by 26%, with 30% unit growth and 5% same-store sales growth, as it established 111 new locations in the quarter, nearly doubling the number of locations opened the previous year.

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Third-quarter earnings were mixed.

Yum! Brands reported its third-quarter fiscal 2022 results for the period ended September 2022 on November 3, 2022. The company posted non-GAAP diluted earnings-per-share (EPS) of $1.09, below analyst projections of $1.15 by $0.0306. Furthermore, revenues increased 2.1% year on year (YoY) to $1.64 billion, exceeding consensus analyst projections of $1.62 billion.

The company added 979 gross units, resulting in a net gain of 644 units. Excluding Russia, global system sales increased by 7%. The strong US currency reduced divisional operating profit by (-$39 million). Taco Bell is expected to dominate unit growth globally, according to the company. It forecasts core operating profit to increase in the mid-single digits in 2022.

“I’m thrilled to report another successful quarter for Yum!, with system sales growth of 10% excluding Russia, driven by good demand for our iconic brands, improved digital adoption, and sustained momentum on unit creation,” said Yum! Brands CEO David Gibbs.

Our three global brands drove extensive system sales growth, proving that our globally diverse business, operated by world-class staff and franchisees, can prosper in any context.”

Is this a weekly bull flag set-up or a reversal breakdown?

Since making a weekly market structure low (MSL) trigger breakthrough through $112.29 at the end of October 2022, DRI stock has been on fire. Since then, shares have risen with higher highs for seven weeks in a row before building a market structure high (MSH) at $132.24 on Dec. 12 and a weekly MSH sales trigger on the collapse through $126.96 as volume begins to fall.

Weekly 20-period exponential moving average (M.A.) support is uptrending at $121.25, followed by weekly 50-period M.A. support at $118.84. As a result, if an MSH sell triggers, look for the retreat supports to create a bull flag before a breakout back up through the MSH trigger level. However, the trend might revert lower and reach the weekly MSL buy trigger around $112.29. Pullback resistance levels are $121.25, $118.84, $114.13, and $112.29.

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Analyst Evaluations

Argus analyst John Staszak raised YUM shares to Buy from Hold, with a $142 price target. He believes that the relatively inexpensive menus, paired with the rapid restaurant openings, will fuel growth, which will be bolstered by the ultimate reopening of the Chinese economy. Furthermore, he anticipates growth from its exclusive delivery service arrangement with GrubHub, which is owned by Just Eat Takeaway.com N.V.

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