Is Yum! Brands Fairly Valued?

Yum! Brands (NYSE: YUM), an American fast food company, has seen negative revenue growth for the past few years. The company’s top line declined by 7.5% in fiscal 2017, mainly because of strategic re-franchising. In Q4’17 alone, Yum re-franchised 896 units. However, this initiative meant that the company received over $1 billion in pre-tax proceeds, which can be used for share buybacks. Additionally, the decision to spin off Chinese operations in late 2016 has helped the company reduce its operating expenses, thereby improving  margins. With the company set to continue with its re-franchising efforts, we expect the top line to further decline in FY’18, but the long-term margin impact should be positive.

We have a price estimate of $74 for Yum! Brands, which is slightly lower than the current market price. Our price estimate is based on the projection of $4.8 billion revenue in FY’18, and a P/S multiple of 4.7, which is higher than the industry average.

Our revenue estimate of $4.8 billion for 2018 is arrived at by projecting revenues for each individual segment. Expected revenue per unit for each of the divisions is multiplied by the expected number of units to arrive at the segment-wise revenue figures. Then, revenue from each segment is summed up to arrive at the total revenue.

Detailed steps to arrive at our price estimate are outlined in our interactive dashboard. You can modify our assumptions to arrive at your own price estimate for the company.

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