Analyst: Yum! Brands, Inc. 'New' Recovery Year Is 2016

Yum Brands Inc. YUM troubled operations in China will turn around in the second half of this year, with 2016 billed as the "new" recovery year. RBC's David Palmer maintained a Buy rating on the restaurant company, but expects Yum will remain dogged through the first half of 2015 by fall-out from a China food safety scare that surfaced last summer. Palmer trimmed his 2015 earnings estimate 3 percent to $3.48 a share, citing currency exchange as well as troubles in China, where the owner of the KFC, Pizza Hut and Taco Bell brands gets about a third of its profits. Of 23 analysts following Yum, 14 rate the company at Hold, one at Sell, with eight maintaining a Buy rating or its equivalent. Yum, of Louisville, Kentucky, changed hands recently at $73.38, down $0.55 cents. A sales recovery in China is the "single most important factor" influencing Yum shares, said Palmer, who maintained at $82 target. The company last week posted a 16 percent decline in fourth-quarter China same-store sales - somewhat less steep than Wall Street had expected. Palmer forecast that comparable sales in China will drop by another 10 percent in the first half of 2015, but gain by 13 percent in the second half. Yum China's 116 percent profit growth in the first half of 2014 "is an example of how a recovery period can look," Palmer said. Palmer also pointed to the company's fourth-quarter same-store sales growth in operations outside of China of 4 percent, and said that rate compares favorably with other fast-food restaurants.