UBS: Time To Recognize Yum's China Profit Potential

Shares of Yum! Brands, Inc. YUM are down almost 3 percent on Wednesday trading after the company beat earnings estimates buy missed consensus on the revenue front. EPS upside was mainly driven by strength in Taco Bell and robust profitability figures in China – operating profit upside on another margin beat, relative strength in same store sales, and some upside from taxes.

In a recent report, UBS analyst Keith Siegner and his team look into the stock and exhort investors and experts to recognize the profit potential from the China segment. They assure that “upside to China profits behind an ongoing sales recovery remains the biggest driver of value for shares, while optionality from strategic alternatives represents downside protection and another potential upside catalyst.”

The analysts at UBS think the China margin beat positions the company well for profit potential as sales continue to recuperate. While consensus still points towards a deterioration in same store sales, the firm believes that the company can meet its guidance for “substantial sss and profit growth in 2H given overall trends in sales and brand perceptions.”

UBS maintains a Buy rating and $116 12-month price target on shares of Yum! Brands. The firm expects earnings of $3.50 per share for 2015 (versus consensus of $3.48 per share); $4.22 per share for 2016 (versus $4.06); and $4.72 per share for 2017 (versus $4.49).