3 Reasons To Go Long On Yum! Brands Stock In 2016

  • The Yum! China spin-off is a big positive for Yum!
  • The buyback program worth $6.2 billion returns $13 per share to investors.
  • The wildly successful social media strategy is translating to strong sales.

The sentiment on Yum! Brands has drastically changed in recent weeks, with over 41% of Buy recommendations being changed to Hold. This means about 58% of the people don't know what they're talking about regarding the outlook of Yum! Brands. In order to understand the cause of this fluctuation, we have to consider three factors: The division of Yum! Brands with the Yum! China spin-off, the attractive buyback program, and its diversity and wildly positive marketing impact with social media in 2016.


China Business Spin-Off

Yum's spin-off of Yum! China is set to complete by 2016, but analysts aren’t taking bets on anything in China without significant dollar value results. There is no reason not to go long on Yum! Brands and Yum! China. There is a high perception of risk among analysts despite the following factors: Tax-free division, fast capital appreciation and improved global sales growth of Yum! Brands in China. This division creates an additional focused-growth company with two industry-leading brands. 75% of Yum! China’s exposure is in KFC restaurants, and KFC’s growth is sustainable in 2016 in China. Casual dining is impacted during bad times, but according to CEO Greg Creed, Yum! Brands is expecting up to a 7% increase in sales growth in spite of this, with multiple efforts to fix macro issues with KFC and Pizza Hut. Pizza Hut makes up 25% of Yum! Brands restaurants in China. Pizza Hut reported a 2% sales growth year-over-year in the last earnings report for Q4 2015 and 1% same-store sales growth. Yum! Brands opens five new stores every day outside of the US. The growth of sales and profits globally for Yum! Brands is impressive considering the volatility and challenges of the global environment.

Yum! Brands' Buyback Program

Yum! Brands has outlined a $6.2 billion buyback in 2016. That $6.2 billion is an attractive amount going back to shareholders, averaging around $13 per share. This is a buyback of 23 million shares. This buyback makes Yum! Brands a highly attractive stock for many types of investors. Yum! Brands is establishing itself to be a less volatile, high cash producing company.

Diversification/Social Media

Yum! Brands is a global company and is both fast-growing and industry leading with Taco Bell and KFC while Pizza Hut is also showing significant improvement. In 2016, the success in year-over-year sales growth of these companies could come due to their impact on social media.

Taco Bell is the king of social media in the restaurant sector in 2016. A testimony of Taco Bell’s superior brand positioning was created with a TV ad during the Super Bowl revealing a mystery item, which received over 67,000 preorders before consumers even knew what the product was going to be. This was backed by trending Instagram hashtags '#TacoBell' and '#Quesalupa', which was the name of the new item, and over 2.6 million views on Snapchat garnered by Taco Bell and influencers.

Pizza Hut also saw impressive Super Bowl marketing success with record-breaking digital sales total before the halftime of the Super Bowl. Pizza Hut generated $12 million in digital sales on the Super Bowl. Additionally, this is KFC’s sixth quarter of positive same-store sales growth.

Lower gas prices are driving consumers towards consumption and spending, which is good news for companies like Taco Bell and Pizza Hut. Commodities are down, which lowers the cost for Yum! Brands and sets them up for consistent margin improvements. The spin-off of Yum! China will help channelize the efforts in the fast-growing Chinese economy in 2016. The buybacks help. Taco Bell's brand positioning in the United States and the improvement in Pizza Hut are positives. Finally, Yum! Brands improvement in sales growth in a volatile Chinese market is impressive, which is why I am bullish and long on Yum! Brands in 2016.

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