With shares of Yum! Brands (NYSE:YUM) trading around $70, is YUM an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
T = Trends for a Stock’s Movement
Yum! Brands is a quick service restaurant company based on number of system units, with approximately 37,000 units in more than 120 countries and territories. The company, through its three concepts of KFC, Pizza Hut and Taco Bell, develops, operates, franchises and licenses a worldwide system of restaurants, which prepare, package and sell a menu of priced food items. As convenience foods continue to rise in popularity worldwide, Yum! Brands is able to provide the food items highly demanded by consumers worldwide. Through its segments, Yum! Brands will continue to supply its world audience with quick and tasty items for many years.
T = Technicals on the Stock Chart are Strong
Yum! Brands stock has seen a consistent uptrend extending back to the early 2000s. The stock has made new all-time highs just about every year and looks to be headed there this year as well. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Yum! Brands is trading above its rising key averages which signal neutral to bullish price action in the near-term.
(Source: Thinkorswim)
Taking a look at the implied volatility (red) and implied volatility skew levels of Yum! Brands options may help determine if investors are bullish, neutral, or bearish.
| Implied Volatility (IV) | 30-Day IV Percentile | 90-Day IV Percentile | |
| Yum! Brands Options | 20.26% | 6% | 5% |
What does this mean? This means that investors or traders are buying a very small amount of call and put options contracts, as compared to the last 30 and 90 trading days.
| Put IV Skew | Call IV Skew | |
| June Options | Average | Average |
| July Options | Average | Best Heal Care Stocks To Watch For 2014Average |
As of today, there is an average demand from call and put buyers or sellers, neutral over the next two months. To summarize, investors are buying a very small amount of call and put option contracts and are leaning neutral over the next two months.
On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.
E = Earnings Are Increasing Quarter-Over-Quarter
Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Yum! Brands’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Yum! Brands look like and more importantly, how did the markets like these numbers?
| 2013 Q1 | 2012 Q4 | 2012 Q3 | 2012 Q2 | |
| Earnings Growth (Y-O-Y) | -7.89% | -2.67% | 25% | 6.15% |
| Revenue Growth (Y-O-Y) | 4.89% | 1.02% | 9.01% | 12.5% |
| Earnings Reaction | 7.01% | -2.9% | 7.49% | 0.47% |
Yum! Brands has seen increasing earnings and revenue figures over most of the last four quarters. From these figures, the markets have been upbeat about Yum! Brands’s recent earnings announcements.
P = Poor Relative Performance Versus Peers and Sector
How has Yum! Brands stock done relative to its peers, McDonald’s (NYSE:MCD), Wendy’s (NASDAQ:WEN), Jack In The Box (NASDAQ:JACK), and sector?
| Yum! Brands | McDonald’s | Wendy’s | Jack In The Box | Sector | |
| Year-to-Date Return | 1.25% | 13.46% | 20.34% | 20.45% | 11.88% |
Yum! Brands has been a relative performance leader, year-to-date.
Conclusion
Yum! Brands provides essential food items to consumers in various countries around the world. The stock has made a significant run higher over the last several years but has been consolidating slightly below all-time highs for the last few months. Earnings and revenue figures have been showing a steady increase over the last several quarters which has kept investors happy. Relative to its peers and sector, Yum! Brands has trailed in year-to-date performance. WAIT AND SEE what Yum! Brands does this coming quarter.
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