Wall Street Can't Reach A Consensus On Yum! Brands

• Shares of Yum! Brands, Inc. YUM were trading lower by 16 percent shortly after Wednesday's opening bell.
• Yum Brands reported it earned $1.00 per share on revenue of $3.427 billion, well below the Street's estimates of $1.07 per share and $3.684 billion in revenue.
• The Street's reaction was mixed following a weak quarter and concerning outlook.

Shares of Yum! Brands plummeted more than 16 percent Wednesday morning after the company's third quarter results fell well short of what Wall Street analysts were anticipating.

Revenue of $3.427 billion also fell short of the $3.684 billion analysts were estimating. The company also revised its full year 2015 earnings per share guidance to a low-single digit percentage gain after previously guiding to "at least 10 percent" improvement year-over-year.

Here is a roundup of what Wall Street's top analysts are saying after the print.

Morgan Stanley: Focus On China

John Glass of Morgan Stanley commented in a note that KFC and Taco Bell's performances were "positive" while Pizza Hut demonstrated flat profits in constant currencies which is an improvement from the last two quarters. However, these divisions are merely "footnotes" because "China is all that really matters."

Glass said Yum Brands' results and outlook out of China were "significant disappointments" as the top-line recovery in the country is "once again slower than expected" and serves as "another piece of evidence" that the company's issues expand beyond food quality concerns.

Related Link: The Life Of A Taco Analyst

Glass pointed out that China comps of 2 percent for the quarter were well below his eight to 10 percent expectations. The analyst added that "more concerning" is the fact that Pizza Hut is comping negatively in China and saw its two-year trends sequentially deteriorate.

Glass did however point out that margins in China "remain a bright spot" at 19.6 percent, especially when considering the shortfall in comps. Nevertheless, a China margin recovery story is "not enough for investors" to become constructive on the stock.

Bottom line, Glass suggested that management's guidance for only a mid-single digit comp in China during the fourth quarter "raises the questions" about the company's long-term sustainability of comps.

Glass noted that more comments will follow (which may include a revision to his Equal-Weight rating) after the conclusion of Yum Brands' conference call which began Wednesday at 9:15 a.m. ET.

Barclays: Will China See A Full Recovery?

Jeffrey Bernstein of Barclays commented in a note that Yum Brands' third quarter China comp shortfall was "large", "well below recently reduced expectations" and "justifiably" overshadows other in-line results from other key segments.

Bernstein suggested that Yum Brands' weakness is both brand specific and macro related as the lower-end KFC segment is now seeing its two-year comps in-line with the higher-end Pizza Hut. Accordingly, the company's main China story is no longer "when will we see a full recovery," rather it is now "will China ever see a full recovery?"

Bernstein added that he is "struggling" to recommend buying the stock following the pullback. In addition, the analyst isn't expecting any relief that may come in the form of a strategic business update until the company hosts its Investor Day presentation on December 10.

Shares remain Equal-Weight rated with a price target lowered to $73 from a previous $82

Credit Suisse: Q3 Miss Raises Long-Term Questions

Jason West of Credit Suisse commented in a note that while investors were anticipating poor results due to China concerns, Yum Brands' third quarter print was "well below even bear case assumptions."

West noted that Yum Brands' shortfall was attributed to its operations in China which is "not recovering as expected" from the July 2014 food safety issue. In fact, the weakness (particularly at Pizza Hut) in China suggests "deeper issues."

West also pointed out that China represents approximately 40 percent of the entire company's profits. Accordingly, the "negative reset" on the company's China growth outlook may diminish the segment's valuation in the event of a China separation.

Shares remain Underperform rated with an unchanged $86 price target.

Oppenheimer: Stock Now Valued As ‘Doomsday' Scenario

Brian Bittner of Oppenheimer commented in a note that Yum Brands' numbers out of China were "out-of-sync" with management's expectations.

However, Bittner argued that Yum Brands' stock price of below $70 is now discounting its China operation as a "doomsday scenario" with "very little value." The analyst added that while this may be "understandable" for the market to hold such a view, the sell-off is "well overdone."

Bittner continued that despite China's difficulties, a separation of the company is still "fully justified" and could prove to be "extremely value-enhancing" to investors at current levels.

Shares remain Outperform rated with a price target lowered to $94 from a previous $105.

RBC: ‘Best Chance' For Upside Is New Corporate Structure

David Palmer of RBC Capital Markets commented in a note that he was "most surprised" to see declines in Pizza Hut China as the division has been a "bright spot" in recent years. The analyst added that he expects to learn more about the segment's decline during Wednesday's conference call as well as an overall market strategy going forward.

Palmer argued that Yum Brands has "prided" itself on a "Dynasty-like" earnings per share growth of at least 10 percent. However, the company is on track to deliver its third consecutive full year of earnings per share growth below 10 percent.

Palmer further added that Yum Brands' stock "may recover" following Wednesday's sell-off, the "best chance" to create "significant" upside would be a new corporate structure which includes a split-off and license-structure for its China business. This may allow the company to see "consistent" double-digit earnings per share growth moving forward.

Shares remain "Top Pick" rated.

Elsewhere On The Street

Analysts at Jefferies maintained a Hold rating and $80 price target but noted it will revisit its estimates and price target following Wednesday conference call.