Restaurants Stocks

Yum Brands Inc Valuation – April 2018 $YUM

Company Profile (excerpt from Reuters): YUM! Brands, Inc., incorporated on May 30, 1997, is engaged in restaurant business. As of December 31, 2016, the Company operated or franchised over 43,500 restaurants in more than 135 countries and territories operating under the KFC, Pizza Hut or Taco Bell (collectively the Concepts) brands. The Company operates through three segments: The KFC Division, which includes the operations of the KFC concept around the world; The Pizza Hut Division, which includes the operations of the Pizza Hut concept around the world, and The Taco Bell Division, which includes the operations of the Taco Bell concept around the world. Through its KFC, Pizza Hut and Taco Bell Concepts, the Company develops, operates or franchises a system of restaurants, which prepare, package and sell a menu of priced food items.

YUM Chart

YUM data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of YUM – April 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $28,206,279,751 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.66 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 50.82% Pass
6. Moderate PEmg Ratio PEmg < 20 25.02 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 -4.69 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.66 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 9.48 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $3.43
MG Growth Estimate 4.79%
MG Value $62.06
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $49.78
MG Value based on 0% Growth $29.18
Market Implied Growth Rate 8.26%
Current Price $85.89
% of Intrinsic Value 138.41%

Yum! Brands, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $2.6 in 2014 to an estimated $3.43 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 8.26% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Yum! Brands, Inc. revealed the company was trading above its Graham Number of $0. The company pays a dividend of $1.2 per share, for a yield of 1.4% Its PEmg (price over earnings per share – ModernGraham) was 25.02, which was below the industry average of 26.95, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-26.41.

Yum! Brands, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$26.41
Graham Number $0.00
PEmg 25.02
Current Ratio 1.66
PB Ratio -4.69
Current Dividend $1.20
Dividend Yield 1.40%
Number of Consecutive Years of Dividend Growth 0

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $2,507,000,000
Total Current Liabilities $1,512,000,000
Long-Term Debt $9,429,000,000
Total Assets $5,311,000,000
Intangible Assets $622,000,000
Total Liabilities $11,645,000,000
Shares Outstanding (Diluted Average) 346,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.20
Dec2017 $3.77
Dec2016 $4.10
Dec2015 $2.90
Dec2014 $2.32
Dec2013 $2.36
Dec2012 $3.38
Dec2011 $2.74
Dec2010 $2.38
Dec2009 $2.22
Dec2008 $1.96
Dec2007 $1.68
Dec2006 $1.46
Dec2005 $1.28
Dec2004 $1.21
Dec2003 $1.01
Dec2002 $0.94
Dec2001 $0.81
Dec2000 $0.69
Dec1999 $0.98
Dec1998 $0.71

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.43
Dec2017 $3.40
Dec2016 $3.14
Dec2015 $2.69
Dec2014 $2.60
Dec2013 $2.70
Dec2012 $2.76
Dec2011 $2.37
Dec2010 $2.10
Dec2009 $1.88
Dec2008 $1.64
Dec2007 $1.43
Dec2006 $1.27
Dec2005 $1.13
Dec2004 $1.01
Dec2003 $0.91
Dec2002 $0.85

Recommended Reading:

Other ModernGraham posts about the company

Yum Brands Inc Valuation – December 2016 $YUM
5 of the Worst Stocks to Invest In – August 2016
Yum! Brands Inc Valuation – August 2016 $YUM
5 Speculative and Overvalued Companies to Avoid – March 2015
18 Companies in the Spotlight This Week – 3/15/15

Other ModernGraham posts about related companies

Starbucks Corporation Valuation – March 2018 $SBUX
McDonald’s Corporation Valuation – February 2018 $MCD
El Pollo LoCo Holdings Inc Valuation – Initial Coverage $LOCO
Chipotle Mexican Grill Inc Valuation – March 2017 $CMG
Sonic Corporation Valuation – Initial Coverage $SONC
Darden Restaurants Inc Valuation – February 2017 $DRI
Jack in the Box Inc Valuation – Initial Coverage $JACK
Chuy’s Holdings Inc Valuation – Initial Coverage $CHUY
Yum Brands Inc Valuation – December 2016 $YUM
McDonald’s Corp Valuation – November 2016 $MCD

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Back To Top