Morningstar

Yum's Quarter Offers Investors Confidence

We're increasing our $78 fair value estimate for the narrow-moat firm.

Securities In This Article
Yum Brands Inc
(YUM)

We believe investors should walk away from

Based on increased visibility over Yum's near-term sales layers, unit development plans, and cost optimization, we still see management's 2019 EPS target of $3.75 as achievable and plan to add a few dollars to our $78 fair value estimate. While macro conditions are still a wild card, we anticipate that a more heavily franchised structure, new sales layers, and increased scale in emerging markets will keep system sales at 6%-7% and drive core operating margins to the mid-50s by 2020 (compared with 26.7% in 2016).

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About the Author

R.J. Hottovy

Sector Strategist
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R.J. Hottovy, CFA, is a consumer strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He is responsible for consumer discretionary and staples research. He has covered the consumer sector as an analyst and director of global consumer equity research for Morningstar since joining the company in 2008, and specializes in a broad range of consumer categories including restaurants, footwear and apparel retailers, consumer electronics retailers, fitness clubs, home improvement and furnishing retailers, and consumer product manufacturers.

Before joining Morningstar, Hottovy was a director and senior stock analyst for Next Generation Equity and an analyst for William Blair & Co., specializing in a wide range of retail and consumer product companies. He also spent two years at Deutsche Bank, covering waste management, water utilities, and equipment rental stocks.

Hottovy holds a bachelor’s degree in finance and a second degree in computer applications from the University of Notre Dame, where he graduated magna cum laude. He also holds the Chartered Financial Analyst® designation and is a member of the CFA Institute and the CFA Society of Chicago.

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