Nomura Names Yum! Brands Top Large Cap Pick In Restaurant Space

• Yum! Brands, Inc. YUM has seen an almost 9 percent increase in its share price, year to date, with the shares reaching a high of $94.88 on May 20.
• Nomura’s Mark Kalinowski has initiated coverage of Yum! Brands with a Buy rating and price target of $106.
• Kalinowski believes that the company is well positioned in China and the US to benefit from multiple opportunities, while naming the company Nomura’s Top Pick among the large cap restaurants in the US.

Analyst Mark Kalinowski said that China was a key market for the company and that Yum! Brands was well positioned in this market not only to enhance its business but to improve business relations and thereby expand operations.

According to the Nomura report, “YUM has the potential to spin off its China business and to issue tracking stock on the Hong Kong stock exchange that would reflect this unit’s performance.”

In fact, Kalinowski believes that the China market could see stabilization and/or recovery over the next 12-18 months.

The company also appears more open now to strengthening its relationship with the Chines government, as well as considering “a tax-efficient IPO, resulting in the listing of a tracking stock on the Hong Kong Stock Exchange that would track YUM China’s performance.”

With regard to the US, Kalinowski believes that the company has the opportunity to “unlock business” if it chooses to spinoff Taco Bell, which is a US centric business in an otherwise internationally focused company.

Kalinowski also believes that all these options do not need to work out for Yum! Brands to benefit. The stock is expected to be “supported over the next 12-18 months by increasing discussion and interest in these and other meaningful opportunities to unlock value,” Kalinowski added.