Since YUM! Brands, Inc. (NYSE:YUM) released its earnings in December 2018, it seems that analyst forecasts are fairly bearish, with earnings expected to decline by -23% in the upcoming year compared with the past 5-year average growth rate of 7.3%. With trailing-twelve-month net income at current levels of US$1.5b, the consensus growth rate suggests that earnings will decline to US$1.2b by 2020. I will provide a brief commentary around the figures and analyst expectations in the near term. For those interested in more of an analysis of the company, you can research its fundamentals here.
How is YUM! Brands going to perform in the near future?
The longer term expectations from the 18 analysts of YUM is tilted towards the negative sentiment. Broker analysts tend to forecast up to three years ahead due to a lack of clarity around the business trajectory beyond this. To reduce the year-on-year volatility of analyst earnings forecast, I've inserted a line of best fit through the expected earnings figures to determine the annual growth rate from the slope of the line.
By 2022, YUM's earnings should reach US$1.4b, from current levels of US$1.5b, resulting in an annual growth rate of -7.1%. This leads to an EPS of $4.7 in the final year of projections relative to the current EPS of $4.79. Contraction in the bottom line seems to suggest cost growth exceeding top-line growth of 0.7% in the next three years. With this high cost growth, margins is expected to contract from 27% to 23% by the end of 2022.
Future outlook is only one aspect when you're building an investment case for a stock. For YUM! Brands, there are three relevant factors you should further research:
- 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! Brands 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! Brands is currently mispriced by the market.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of YUM! Brands? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
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