Yum China Holdings, Inc. (NYSE:YUMC) last week reported its latest quarterly results, which makes it a good time for investors to dive in and see if the business is performing in line with expectations. It looks like a credible result overall - although revenues of US$2.3b were what the analysts expected, Yum China Holdings surprised by delivering a (statutory) profit of US$1.10 per share, an impressive 112% above what was forecast. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.
After the latest results, the 22 analysts covering Yum China Holdings are now predicting revenues of US$9.69b in 2021. If met, this would reflect a huge 21% improvement in sales compared to the last 12 months. Statutory earnings per share are predicted to accumulate 4.8% to US$2.00. Before this earnings report, the analysts had been forecasting revenues of US$9.54b and earnings per share (EPS) of US$2.03 in 2021. The consensus analysts don't seem to have seen anything in these results that would have changed their view on the business, given there's been no major change to their estimates.
The analysts reconfirmed their price target of US$61.20, showing that the business is executing well and in line with expectations. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. There are some variant perceptions on Yum China Holdings, with the most bullish analyst valuing it at US$68.00 and the most bearish at US$47.00 per share. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await Yum China Holdings shareholders.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Yum China Holdings' past performance and to peers in the same industry. It's clear from the latest estimates that Yum China Holdings' rate of growth is expected to accelerate meaningfully, with the forecast 21% revenue growth noticeably faster than its historical growth of 3.7%p.a. over the past five years. Compare this with other companies in the same industry, which are forecast to grow their revenue 22% next year. Factoring in the forecast acceleration in revenue, it's pretty clear that Yum China Holdings is expected to grow at about the same rate as the wider industry.
The Bottom Line
The most obvious conclusion is that there's been no major change in the business' prospects in recent times, with the analysts holding their earnings forecasts steady, in line with previous estimates. Happily, there were no real changes to sales forecasts, with the business still expected to grow in line with the overall industry. The consensus price target held steady at US$61.20, with the latest estimates not enough to have an impact on their price targets.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have forecasts for Yum China Holdings going out to 2024, and you can see them free on our platform here.
However, before you get too enthused, we've discovered 1 warning sign for Yum China Holdings that you should be aware of.
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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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