Yum! Brands business model ‘positions the stock favorably’ – Cowen

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Cowen analysts raised the firm’s price target on Yum! Brands (NYSE:YUM) to $155 from $130, stating it is one of the firm’s best ideas for 2023.

The firm currently has an Outperform rating on the stock. Analysts told investors in a research note that “YUM’s diversified, asset-light business model positions the stock favorably as inflation remains elevated.”

“We view YUM as attractive on a total shareholder return basis given a ~12% 2022-25E EPS CAGR + ~2% dividend yield, with room for multiple expansion. In our view, the most tangible opportunities for multiple expansion are sustained system net restaurant development in excess of 4%-5% long-term guidance that prompts a guidance raise, as well as upside to Taco Bell comps. Taco Bell U.S. (~30% of operating profits) is the largest of YUM’s 290+ brand/country combinations, and we view as the crown jewel of YUM’s portfolio,” wrote the analysts.

They added that the key 2023 catalysts are “Taco Bell U.S. (~30% of EBIT) SSS upside & China (~15% of EBIT) reopening potential. In addition, they believe the December 13 investor meeting presents a “positive catalyst for shares if long term guidance for annual net restaurant development is raised to 5%-6% from 4%-5%.”

“We see opportunities for upside as the brand balances value and premium menu innovation, and to a lesser degree benefiting from sales that over-index to late night (8 PM – close) where the brand is having an easier time staffing vs peers,” said the analysts.