Yum Has Big China Opportunity...But There Are Headwinds

In a report published Thursday, Bank of America Merrill Lynch analysts maintained their Neutral rating on

, while raising the price target to $100. "Yum's stock has moved up recently due to an announcement of two activist shareholder stakes as well as investor belief of increased likelihood Yum will sell or spin its China division, a move that would highlight both the China opportunity as well as the stability of the highly franchised non-China business," the analysts said. The analysts, however, do not expect a split or sale of the China business, especially in the current depressed state. The company holds a long-term dominant position in the Chinese market, with meaningful scale, supply chain and real estate advantages. The company expects its China restaurant margins to recover to more than 20 percent, driven by a recover in sales. Yum! Brands, however, reiterated its guidance of negative comps for 2Q and positive comps for 3Q and 4Q. "Even though Yum is well-positioned in China, several macro factors are weighing on the business, including slowing GDP growth for the overall Chinese economy, heightened competition in the restaurant industry and a growing food delivery market that allows customers to more freely shop around for options," the analysts added.