Why Yum China (YUMC) Might be Well Poised for a Surge
Investors might want to bet on Yum China Holdings (YUMC), as earnings estimates for this company have been showing solid improvement lately. The stock has already gained solid short-term price momentum, and this trend might continue with its still improving earnings outlook.
The upward trend in estimate revisions for this restaurant operator in China reflects growing optimism of analysts on its earnings prospects, which should get reflected in its stock price. After all, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. This insight is at the core of our stock rating tool -- the Zacks Rank.
The five-grade Zacks Rank system, which ranges from a Zacks Rank #1 (Strong Buy) to a Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record of outperformance, with Zacks #1 Ranked stocks generating an average annual return of +25% since 2008.
Consensus earnings estimates for the next quarter and full year have moved considerably higher for Yum China, as there has been strong agreement among the covering analysts in raising estimates.
The chart below shows the evolution of forward 12-month Zacks Consensus EPS estimate:
12 Month EPS
Current-Quarter Estimate Revisions
For the current quarter, the company is expected to earn $0.13 per share, which is a change of -69.05% from the year-ago reported number.
The Zacks Consensus Estimate for Yum China has increased 44.44% over the last 30 days, as one estimate has gone higher compared to no negative revisions.
Current-Year Estimate Revisions
The company is expected to earn $0.93 per share for the full year, which represents a change of -50.53% from the prior-year number.
In terms of estimate revisions, the trend for the current year also appears quite encouraging for Yum China. Over the past month, three estimates have moved higher compared to no negative revisions, helping the consensus estimate increase 22.86%.
Favorable Zacks Rank
Thanks to promising estimate revisions, Yum China currently carries a Zacks Rank #2 (Buy). The Zacks Rank is a tried-and-tested rating tool that helps investors effectively harness the power of earnings estimate revisions and make the right investment decision. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Our research shows that stocks with Zacks Rank #1 (Strong Buy) and 2 (Buy) significantly outperform the S&P 500.
Bottom Line
Yum China shares have added 15.4% over the past four weeks, suggesting that investors are betting on its impressive estimate revisions. So, you may consider adding it to your portfolio right away to benefit from its earnings growth prospects.
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