Should You Invest in Yum Brands?

PHOTO CREDIT: Yum Brands

OVERVIEW

Yum Brands Incorporation is a fast-food giant based in the United States with locations around the world, except China whose stores are operated by another company (Yum China). The company operates thousands of restaurants around the world through Pizza Hut, KFC, Taco Bell, the Habit Burger Grill, and several other brands. The company was founded in 1997.

Why You Should?

1. Yum Brands sees growth returning across all of its brands after the COVID-19 Pandemic caused the company to shut thousands of locations around the world. The company has seen increasing digitization sales and has also partnered with several food delivery companies to deliver their products directly to their consumer's homes. This will benefit the company.
2. The COVID-19 Pandemic has caused worldwide household income to decrease due to unemployment and other factors. This helps Yum Brands have a stable business during these economic times in comparison to its smaller competitors which are going bankrupt due to tough government regulation. This stability will benefit the company in the future.
3. Yum Brands has been positioning itself for the future of fast food. The company has been investing in automation and has been finding ways to become more efficient. Mobile restaurant concepts, robots, and redesigned store interiors to attract millennials to its stores will benefit the company in the future.

Why You Should Not?

1. The COVID-19 Pandemic has caused Yum Brands to close several locations in malls and airports due to little to no demand due to government regulation. Franchisers going bankrupt might also reduce the company’s store count in its markets. This caused the company’s sales to fall in some markets which rely on in-store dining options.
2. Yum Brands faces tough competition from other fast-food companies like McDonald’s (who just reported strong U.S. sales), Dominos Pizza, Chipotle, Darden Restaurants, and Wendy’s. This competition might hurt the company’s future sales and growth.
3. Yum Brands has seen weak growth over the past couple of financial years which has led to a decrease in sales and volume. This is due to slower growth in Pizza Hut and KFC sales. The company had to spin off its China division due to weaker growth in that market, even though the company had opened up new locations there. This has also led to a decline in sales.
4. Yum Brands has seen revenues and profits fall over the past couple of financial years as the company saw weaker growth due to a shift in consumer tastes and preferences across its markets. This will negatively impact the company’s future growth as it looks to return to growing revenues and profits in the future. In the financial year of 2019, the company reported revenues of around 5.6 billion and profits of around 1.3 billion. Both of these metrics are lower than what the company reported in the financial year of 2018 when they had profits of around 5.7 billion and profits of around 1.5 billion.

PHOTO CREDIT: Yahoo Finance

MY OPINION

In my opinion, I think that Yum Brands might be a good long-term investment if they can turn sliding operating metrics around. However, I think that investors would be better off investing in McDonald’s and Domino’s Pizza. Competition, weak operating numbers, and weak growth will all hurt the company in the future.