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Will YUM! Brands (YUM) Continue its Bull Run in 2019?

Zacks Equity Research

In an intensely competitive restaurant industry, YUM! Brands, Inc. YUM has done exceedingly well and emerged as an attractive investment option. This is quite evident from its share price performance in the past six months. The stock has gained 15.3% compared with the industry’s 11% growth.

We believe there is still momentum left in this Zacks Rank #2 (Buy) company. This is because the company has an expected long-term earnings growth rate of 12.8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks such as Cracker Barrel Old Country Store, Inc. CBRL, Chipotle Mexican Grill, Inc. CMG and Dave & Bojangles', Inc. BOJA, which belong to the same industry, have also gained 13.2%, 13.8% and 7.7%, respectively, in a year’s time.

Let’s delve deeper and find out the reason that kept YUM! Brands ahead of its peers.

Key Catalysts

Yum! Brands has a three-year strategic transformation plan to drive growth at KFC, Pizza Hut and Taco Bell brands. Notably, the company’s transformation and growth strategy involve employing greater focus on the development of its three iconic global brands, increasing its franchise ownership and creating a leaner, more efficient cost structure. It is also emphasizing on restaurant development to boost continued growth.

Meanwhile, the digital wave has hit the U.S. fast casual restaurant sector. More and more restaurants are deploying technology to enhance guest experience. Yum! Brands is also not far behind in the race. The company is consistently making efforts to transform a single point-of-sale system in the United States.

Regarding the mobile and online platforms, it is imperative to mention that the company has already implemented various digital features across all its brand segments to enhance guest experience. Yum! Brands have also worked toward making its delivery services swifter, and the initial results so far have been positive.

To enhance its delivery services, the company announced Pizza Hut’s partnership with Toyota. This deal will facilitate delivery of pizzas via driverless vehicles, showcasing innovation for both the companies.

Further, Yum! Brands has adopted a de-risking strategy by reducing its ownership of restaurants through refranchising. In fact, the China division’s spin-off has largely made Yum! Brands a more asset-light company as many company-owned restaurants have been in the Chinese market. In third-quarter 2018, the company had franchise ownership of nearly 98%.

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