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The Zacks Analyst Blog Highlights: Yum! Brands, McDonald's, BJ's Restaurants, Chipotle Mexican Grill and Papa John's International

Zacks Equity Research

For Immediate Release
Chicago, IL – August 04, 2014 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the Yum! Brands, Inc. (YUM-Free Report), McDonald's Corp. (MCD-Free Report), BJ's Restaurants, Inc. (BJRI-Free Report), Chipotle Mexican Grill, Inc. (CMG-Free Report) and Papa John's International Inc. (PZZA-Free Report).
Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

Here are highlights from Friday’s Analyst Blog:

Ongoing China Meat Issues Hitting Yum! (YUM) Shares
For Yum! Brands, Inc. (YUM-Free Report) the nightmarish days of 2012 in China might just be coming back again. The company’s stock slid by almost 5% in the trading session on Thursday, as the company declared that the latest food safety scare is testing local consumers' loyalty to its KFC and Pizza Hut brands.
In a regulatory filing Yum! stated that adverse media reports in mid July relating to chicken quality standards significantly hurt traffic at its KFC and Pizza Hut restaurants in China in just 10 days thereafter.
Further, the quick-service chain stated that if the sales decline persists over an extended period of time, it will dent the full-year earnings per share results.
Adverse Publicity
Local Chinese television media uncovered a new scandal in July blaming workers at Shanghai Husi Food Co – unit of U.S.-based OSI Group LLC – of reusing meat that had fallen on the factory floor as well as mixing fresh and expired meat. Notably, Notably, Shanghai Husi Food Co. supplied meat to both KFC — a division of Yum! — and McDonald's Corp. (MCD-Free Report) in the Shanghai region. (Read: Food-Safety Concerns Threaten Yum! & McDonald's China Sales)
As Chinese regulators started investigating Shanghai Husi, Yum! Brands reportedly apologized and announced a change in meat suppliers. The Shanghai Food and Drug Administration also reportedly closed down Husi’s operations, according to a Forbes report. However, the damage is already done as is clearly evident from the declining sales.
Bad News
The slowdown in sales is bad news for Yum! especially because its China division had seemingly recovered from the 2012 food safety ordeals and an avian flu outbreak. The millions that the company spent over the past two years on promotions, trying to boost sales and getting a clean bill were successful as customers returned to its restaurants. In fact, the China Division recorded a 15% rise in comps in its last reported quarter.
Another cause of concern for Yum! is its dependence on China for a major part of profit, especially when its U.S. business is suffering from intense competition, lowered spending and increasing preference for healthy and nutritious foods among Americans.
Yum! currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the restaurant industry include BJ's Restaurants, Inc. (BJRI-Free Report) and Chipotle Mexican Grill, Inc. (CMG-Free Report). Both these stocks sport a Zacks Rank #1 (Strong Buy).
Will Papa John's (PZZA) Beat Earnings Estimates in Q2?
One of the leading pizza delivery companies, Papa John's International Inc. (PZZA-Free Report) is set to report second-quarter 2014 results on Aug 5, 2014. In the last quarter, the company posted in- line results. Let’s see how things are shaping up for the upcoming announcement.
Why a Likely Positive Surprise?
Our proven model shows that Papa John's is likely to beat earnings because it has the right combination of two key components.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +4.88%. This is very meaningful and a leading indicator of a likely positive earnings surprise for the company.
Zacks Rank: Papa John's has a Zacks Rank #2 (Buy). Note that stocks with Zacks Ranks #1 (Strong Buy), #2 (Buy) and #3 (Hold) have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
The combination of Papa John's Zacks Rank #2 and ESP of +4.88% makes us confident of an earnings beat on Aug 5.
What is Driving the Better Than Expected Earnings?
Papa John's’ has been consistently delivering positive comps domestically as well as in the international markets over the past few quarters. The company’s brand revitalization initiatives such as unit expansion and international expansion have contributed significantly to its comps growth.
The company is also investing in technology-driven initiatives like digital ordering in order to capitalize on the digital wave that has hit the U.S. fast casual restaurant sector. As a matter of fact, total domestic digital sales were more than 45% in the first quarter.

Moreover, limited time offerings and menu innovation continue to play an important part in generating revenues. We expect these initiatives to continue to drive sales in the second quarter as well.

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