Yum Brands Upgraded On Yum China Spinoff, Refranchising Success

Premised on the transformation of Yum! Brands, Inc. YUM's business through refranchising, Argus upgraded the shares of the company on Tuesday.

Refranchising In The Works

Analyst John Staszak noted that the company plans to raise the percentage of franchised restaurants to 98 percent by 2018 from 93 percent currently. Additionally, the company looks to scale down capital spending to $100 million, annually, from $422 million in 2016, and reduce annual G&A expense by $300 million, the analyst added.

Management Goals Achievable

Pointing to the management's target of achieving earnings per share of $3.75 by 2019 and delivering average annual returns of 15 percent over the next two years, Argus said it expects the company to reach those goals through continued refranchising and cost-cutting. The firm expects at least mid-teens earnings per share growth in 2017 and 2018.

Above-Consensus On Twin Factors

Reflecting the spinoff of Yum China Holdings Inc YUMC and the benefits of accelerated refranchising, the firm expects 2017 earnings per share of $2.80 and 2018 earnings per share of $3.20. The firm noted that both estimates were above the consensus estimates.

As such, Argus upgraded the shares of the company to Buy from Hold and it set a price target of $80.

At last check, Yum China shares were up 3.2 percent at $34.88, while Yum Brands remained flattish at $69.34.

Related Links:

The Real Winner Of The Kentucky Derby

Whet Your Restaurant Sector Appetite: A 2017 Outlook _______ Image Credit: By Jwhalin - Own work, Public Domain, via Wikimedia Commons