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Yum! Brands, the second-largest quick-service restaurant company in the world, reported better-than-expected earnings in the fourth quarter as Americans bought more fast food during the COVID-19 pandemic.

The holding company for Pizza Hut, Taco Bell, and KFC said its overall revenue increased nearly 3% to $1.74 billion, beating the Wall Street consensus estimate of $1.72 billion. Fourth-quarter EPS excluding Special Items was $1.15, an increase of 15%, beating the market expectations of $1.01 per share. Full-year EPS excluding Special Items was $3.62, an increase of 2%.

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In 2020, digital sales hit a record of $17 billion, about a 45% increase over the prior year.

YUM‘s 4Q beat was driven by taxes as Taco Bell same-store sales & profits and KFC profits missed our estimates. Within 4Q results, we were most encouraged by development that exceeded our consensus-matching estimate, fueled by KFC international, and the resumption of share repurchases,” said Andrew M. Charles, equity analyst Cowen and company.

Yum! Brands shares traded nearly flat at $104.82 on Thursday. However, the stock rose about 8% in 2020.

Yum! Brands Stock Price Forecast

Eleven analysts who offered stock ratings for Yum! Brands in the last three months forecast the average price in 12 months at $113.18 with a high forecast of $125.00 and a low forecast of $103.00.

The average price target represents a 7.40% increase from the last price of $105.38. From those 11 analysts, four rated “Buy”, six rated “Hold”, and one rate “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $122 with a high of $154 under a bull scenario and $84 under the worst-case scenario. The firm currently has an “Overweight” rating on the restaurant company’s stock.

Several other analysts have also recently commented on the stock. Cowen and company raised the target price to $105 from $102. Yum! Brands had its price target upped by MKM Partners to $115 from $110. They currently have a neutral rating on the restaurant operator’s stock.

In addition, BidaskClub downgraded Yum! Brands to a sell rating from hold. Wells Fargo & Company upgraded to an overweight rating from equal weight and boosted their price target to $125 from $109.

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Analyst Comments

YUM is a globally and brand-diversified, near all franchised, asset-light QSR brand owner. Transitioned to 98% franchised, reduced ongoing capex to $100 million, targets G&A at 1.7% of system sales and +100% FCF conversion. ‘New’ YUM is one of the only true large-scale growth opportunities for restaurants, in our view, and has significant exposure to the world’s largest developing markets (+35% EM); global comps running similar to peers pre-COVID-19,” said John Glass, equity analyst at Morgan Stanley.

“Valuation gap creates an opportunity given still strong fundamentals, in our view. Pizza Hut US fears reflected in the stock, but only 8% of op profit and in a bear case present little risk to EPS.”

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