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Here's Why You Should Retain YUM! Brands (YUM) Stock Now

Yum! Brands, Inc. YUM is likely to benefit from strong Taco Bell performance, unit expansion and digital initiatives. Also, the emphasis on the rollout of digital order pickup shelves bodes well. However, commodity inflation is a concern.

Let us discuss the factors that highlight why investors should retain the stock for now.

Factors Driving Growth

YUM! Brands is benefiting from increased contributions from Taco Bell. During first-quarter 2023, Taco Bell's revenues were $572 million, up 11% from the year-ago quarter's levels. The upside was primarily backed by same-store sales growth (of 12%) and unit growth (6%). During the quarter, the company reported solid demand with respect to crave-able product offerings, including Crispy Melt Taco and the Grilled Cheese Burrito. It also initiated delivery service through its mobile app, boosting customer access for its crave-able products.

During the quarter, Taco Bell's International system sales increased 25% year over year, courtesy of continued development momentum and strong value propositions (through menu innovation offerings). The company announced that it is focused on building momentum in markets like the U.K., China, Spain and India. Given the emphasis on consumer value proposition, expanded digital access and franchise partners, the company anticipates the momentum to continue in the upcoming periods.

Yum! Brands implemented various digital features in mobile and online platforms across all brand segments to enhance guest experience. The company is accelerating its delivery services and the results have been positive so far. In first-quarter 2023, it reported digital sales of approximately $7 billion. YUM made significant progress concerning the rollout of digital order pickup shelves. To this end, the company added pickup shelves at Habit Burger Grill stores and Taco Bell. Given the emphasis on expanding options and ease for off-premise consumption, the company anticipates deploying pickup shelves across the rest of the system by early 2023.

The company continues to focus on expansion efforts to drive growth. Considering its existing footprint of more than 50,000 restaurants worldwide, YUM! Brands believes it can nearly triple its current global presence over the long term. During the first quarter of 2023, the company opened 746 gross new units, including nearly 271 gross new units at Pizza Hut and 385 gross new units at KFC. The company reported solid developmental contributions from each brand in China, India and Latin America markets. It anticipates achieving a long-term unit growth of 5% in the upcoming periods.

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Zacks Investment Research


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In the past six months, shares of the company have gained 12.2% compared with the Retail – Restaurants industry’s 10.4% growth.

Concerns

The company has been continuously shouldering increased expenses, which have been detrimental to margins. In first-quarter 2023, its net costs and expenses amounted to $1,122 million compared with $1,038 million reported in the prior-year quarter. The transfer of business and exit from Russia incorporated certain additional costs, which hurt the margins of the company. Also, spikes in commodity inflation added to the downside. We believe that costs associated with brand positioning in all key markets and ongoing investments in initiatives are likely to dent margins in the near term. Although most dining services are open, traffic is still low compared with pre-pandemic levels.

Zacks Rank & Key Picks

Yum! Brands currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Zacks Retail-Wholesale sector are Arcos Dorados Holdings Inc. ARCO, Chipotle Mexican Grill, Inc. CMG and Chuy's Holdings, Inc. CHUY.

Arcos Dorados currently sports a Zacks Rank #1 (Strong Buy). ARCO has a long-term earnings growth rate of 7.8%. The stock has gained 13.2% in the past year. You can see the complete list of today’s Zacks Rank #1 stocks here.

The Zacks Consensus Estimate for Arcos Dorados’ 2023 sales suggests growth of 13.4% from the year-ago period’s levels.

Chipotle carries a Zacks Rank #1. CMG has a long-term earnings growth rate of 31.8%. The stock has improved 54.9% in the past year.  

The Zacks Consensus Estimate for Chipotle’s 2024 sales and EPS suggests growth of 12.4% and 19.7%, respectively, from the year-ago period’s levels.

Chuy’s Holdings carries a Zacks Rank #2 (Buy). CHUY has a trailing four-quarter earnings surprise of 23.4%, on average. Shares of CHUY have increased 64.1% in the past year.

The Zacks Consensus Estimate for Chuy’s Holdings 2023 sales and EPS suggests growth of 10.1% and 23.4%, respectively, from the year-ago period’s levels.

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Yum! Brands, Inc. (YUM) : Free Stock Analysis Report

Chipotle Mexican Grill, Inc. (CMG) : Free Stock Analysis Report

Chuy's Holdings, Inc. (CHUY) : Free Stock Analysis Report

Arcos Dorados Holdings Inc. (ARCO) : Free Stock Analysis Report

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