Yum Brands (NYSE:YUM) is a fast food conglomerate which has done relatively well, all things considered, given the niche this company operates in. That being said, share of Yum have struggled recently, pushing many investors to take a closer look at this company to see what kind of value is there.
Taking a closer look at Yum’s portfolio of brands, it becomes clear that some companies are doing much better than others. In that regard, I think of Yum in a similar light to Canada-based Restaurant Brands Holdings Inc. (TSX:QSR)(NYSE:QSR), whose Tim Horton’s brand has greatly underperformed brands like Popeye’s and Burger King. For Yum, the equivalent brand to Tim Horton’s would be Pizza Hut, a subsidiary which continues to struggle and lose market share to competitors.
The interesting twist to Yum’s business model is much higher exposure to China than other companies like Restaurant Brands, making the recent coronavirus outbreak much more of an issue for Yum to control. The positive for shareholders is that Yum has a franchise model in China and does not own its locations outright. Therefore, while this headwind will certainly hurt its top line franchise fee-related revenue, Yum does not have capital exposure, leases, etc. to worry about, cushioning this blow for investors.
I do like Yum’s market penetration in Asia compared to its peers. However, right now I see too many headwinds with Yum to recommend investors take a long position. I would say, given a few moths, checking in to see if and how the long-term prospectus for Yum has changed it all, could be a solid move if you’re considering adding a position. If you’re not, steer clear for now.
Invest wisely, my friends.
