YUM! Brands, Inc.’s (NYSE:YUM) most recent earnings update in December 2018 revealed that the business benefited from a strong tailwind, leading to a double-digit earnings growth of 15%. Below is my commentary, albeit very simple and high-level, on how market analysts predict YUM! Brands’s earnings growth trajectory over the next few years and whether the future looks even brighter than the past. I will be looking at earnings excluding extraordinary items to exclude one-off activities to get a better understanding of the underlying drivers of earnings.
Analysts’ expectations for next year seems pessimistic, with earnings reducing by a double-digit -23%. In the next couple of years, earnings are predicted to continue to be below today’s level, with a decline of -19% in 2021, eventually reaching US$1.3b in 2022.
Even though it is helpful to understand the growth rate year by year relative to today’s figure, it may be more insightful to determine the rate at which the company is moving every year, on average. The benefit of this approach is that we can get a better picture of the direction of YUM! Brands’s earnings trajectory over the long run, irrespective of near term fluctuations, which may be more relevant for long term investors. To compute this rate, I put a line of best fit through the forecasted earnings by market analysts. The slope of this line is the rate of earnings growth, which in this case is -6.8%. This means, we can assume YUM! Brands will chip away at a rate of -6.8% every year for the next few years.
For YUM! Brands, there are three pertinent aspects you should further examine:
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Valuation: What is YUM worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether YUM is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of YUM? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.