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Here's Why You Should Retain YUM! Brands (YUM) Stock Now
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Yum! Brands, Inc. (YUM - Free Report) is likely to benefit from strong Taco Bell performance, elevated core menu and digital efforts. Also, the emphasis on commercial strategies, including brand building, bodes well. However, dismal comps, the Middle East conflict and high costs are a concern.
Let us discuss the factors that highlight why investors should retain the stock for now.
Factors Driving Growth
Year to date, the company’s shares have moved up 5.4% against the industry’s 0.8% decline. YUM has been benefiting from a strategic blend of value offerings and digital innovation. The strategy has driven improving trends, particularly in the U.S. market, while international operations are also showing positive momentum.
Image Source: Zacks Investment Research
In the second quarter, YUM reported signs of recovery, driven by solid performance across its divisions. During second-quarter 2024, Taco Bell's revenues were $666 million, up 7% from the year-ago quarter's levels. The upside was primarily backed by same-store sales growth (5%) and unit growth. Also, the emphasis on commercial strategies, including building brand buzz, unparalleled value and mass occasions bodes well.
The company is inclined toward elevating its core menu to expand its customer base and drive growth. During second-quarter 2024, the company witnessed the strong performance of the Cantina Chicken menu upon its launch, driving Taco Bell’s top line. Since the new digital platform launch, Taco Bell's chicken sales mix increased 10 points with nearly one in four orders, including a Chicken Cantina item. During the quarter, this division introduced a variety of compelling menu innovations such as the Cheez-It and Secret Aardvark fries.
Considering the Yum! e-commerce platform, the company stated progress in implementing this technology at Pizza Hut United States as of second-quarter 2024. It is optimistic about transitioning its operations at Pizza Hut U.K. and Canada into this digital platform soon. The company is stated to have fully deployed its Poseidon point-of-sale system within Taco Bell United States and is in the early stages of incorporating this system into the KFC United States estate.
YUM is making significant strides in digital sales and AI-driven solutions. It plans to roll out Voice AI technology in Taco Bell drive-thrus, aiming to enhance customer experience and streamline operations. These technological advancements are expected to strengthen YUM!’s competitive position and improve profitability.
Concerns
Yum! Brands is grappling with a challenging operating environment. During the second quarter, worldwide comps at Yum! Brands dropped 1% year over year against growth of 9% reported in the prior-year quarter. The downside was caused by the negative impacts of the Middle East conflict and uncertainty in consumer discretionary spending, given the inflated market scenario. This can be reflected in the declining comps at the KFC, Pizza Hut and the Habit Burger Grill Division, indicating a 3%, 3% and 6% decline, respectively, year over year. The company expects these headwinds to impact comps in the near term, with the expectations of normalizing from the last quarter of 2024 to the first quarter of 2025.
The firm has been persistently shouldering increased expenses, which have been detrimental to margins. During the second quarter, total costs and expenses increased to $1.16 billion from $1.11 billion reported in the prior-year quarter. The upside was mainly caused by increases in the company restaurant expenses and franchise advertising and other services expenses. It remains cautious about the uncertain macro environment.
Zacks Rank & Key Picks
Yum! Brands currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Retail-Wholesale sector include:
The Zacks Consensus Estimate for TXRH’s 2024 sales and earnings per share (EPS) indicates 15.6% and 39.2% growth, respectively, from the year-earlier actuals.
Wingstop Inc. (WING - Free Report) carries a Zacks Rank #2 (Buy). It has a trailing four-quarter negative earnings surprise of 21.8%, on average. The stock has surged 132.3% in the past year.
The Zacks Consensus Estimate for WING’s 2024 sales and EPS suggests a rise of 36% and 51.2%, respectively, from the year-ago levels.
El Pollo Loco Holdings, Inc. (LOCO - Free Report) carries a Zacks Rank #2. It has a trailing four-quarter earnings surprise of 21.6%, on average. LOCO’s shares have risen 38.1% in the past year.
The Zacks Consensus Estimate for LOCO’s 2025 sales and EPS indicates 2% and 12.7% growth, respectively, from the prior-year figures.
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Here's Why You Should Retain YUM! Brands (YUM) Stock Now
Yum! Brands, Inc. (YUM - Free Report) is likely to benefit from strong Taco Bell performance, elevated core menu and digital efforts. Also, the emphasis on commercial strategies, including brand building, bodes well. However, dismal comps, the Middle East conflict and high costs are a concern.
Let us discuss the factors that highlight why investors should retain the stock for now.
Factors Driving Growth
Year to date, the company’s shares have moved up 5.4% against the industry’s 0.8% decline. YUM has been benefiting from a strategic blend of value offerings and digital innovation. The strategy has driven improving trends, particularly in the U.S. market, while international operations are also showing positive momentum.
Image Source: Zacks Investment Research
In the second quarter, YUM reported signs of recovery, driven by solid performance across its divisions. During second-quarter 2024, Taco Bell's revenues were $666 million, up 7% from the year-ago quarter's levels. The upside was primarily backed by same-store sales growth (5%) and unit growth. Also, the emphasis on commercial strategies, including building brand buzz, unparalleled value and mass occasions bodes well.
The company is inclined toward elevating its core menu to expand its customer base and drive growth. During second-quarter 2024, the company witnessed the strong performance of the Cantina Chicken menu upon its launch, driving Taco Bell’s top line. Since the new digital platform launch, Taco Bell's chicken sales mix increased 10 points with nearly one in four orders, including a Chicken Cantina item. During the quarter, this division introduced a variety of compelling menu innovations such as the Cheez-It and Secret Aardvark fries.
Considering the Yum! e-commerce platform, the company stated progress in implementing this technology at Pizza Hut United States as of second-quarter 2024. It is optimistic about transitioning its operations at Pizza Hut U.K. and Canada into this digital platform soon. The company is stated to have fully deployed its Poseidon point-of-sale system within Taco Bell United States and is in the early stages of incorporating this system into the KFC United States estate.
YUM is making significant strides in digital sales and AI-driven solutions. It plans to roll out Voice AI technology in Taco Bell drive-thrus, aiming to enhance customer experience and streamline operations. These technological advancements are expected to strengthen YUM!’s competitive position and improve profitability.
Concerns
Yum! Brands is grappling with a challenging operating environment. During the second quarter, worldwide comps at Yum! Brands dropped 1% year over year against growth of 9% reported in the prior-year quarter. The downside was caused by the negative impacts of the Middle East conflict and uncertainty in consumer discretionary spending, given the inflated market scenario. This can be reflected in the declining comps at the KFC, Pizza Hut and the Habit Burger Grill Division, indicating a 3%, 3% and 6% decline, respectively, year over year. The company expects these headwinds to impact comps in the near term, with the expectations of normalizing from the last quarter of 2024 to the first quarter of 2025.
The firm has been persistently shouldering increased expenses, which have been detrimental to margins. During the second quarter, total costs and expenses increased to $1.16 billion from $1.11 billion reported in the prior-year quarter. The upside was mainly caused by increases in the company restaurant expenses and franchise advertising and other services expenses. It remains cautious about the uncertain macro environment.
Zacks Rank & Key Picks
Yum! Brands currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Retail-Wholesale sector include:
Texas Roadhouse, Inc. (TXRH - Free Report) sports a Zacks Rank #1 (Strong Buy). It has a trailing four-quarter earnings surprise of 0.4%, on average. TXRH’s shares have surged 59.7% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for TXRH’s 2024 sales and earnings per share (EPS) indicates 15.6% and 39.2% growth, respectively, from the year-earlier actuals.
Wingstop Inc. (WING - Free Report) carries a Zacks Rank #2 (Buy). It has a trailing four-quarter negative earnings surprise of 21.8%, on average. The stock has surged 132.3% in the past year.
The Zacks Consensus Estimate for WING’s 2024 sales and EPS suggests a rise of 36% and 51.2%, respectively, from the year-ago levels.
El Pollo Loco Holdings, Inc. (LOCO - Free Report) carries a Zacks Rank #2. It has a trailing four-quarter earnings surprise of 21.6%, on average. LOCO’s shares have risen 38.1% in the past year.
The Zacks Consensus Estimate for LOCO’s 2025 sales and EPS indicates 2% and 12.7% growth, respectively, from the prior-year figures.