Yum Brands: The Transformation
Following Yum! Brands, Inc. (NYSE: YUM) annual investor conference, Barclays said the conference set the stage for the Yum transformation. The firm noted that the event highlighted two powerful, independent, focused growth companies, with the accent on the New Yum. The long overdue separation, according to the firm, had left investors undecided on their choice between the new Yum and Yum China.
Analyst Jeffrey Bernstein believes Yum China, which will be separated by October 31 and be the franchised segment for the new YUM, will no longer be the outsized profit driver. The analyst sees the new YUM as a more mature, franchised, heavily levered, return of cash focused global platform.
On the other hand, the Yum China, according to the analyst, will be a high growth, emerging market, co-op platform. The analyst prefers to be on the sidelines until the dust settle post separation.
On the financial strategies, Yum outlined at the event, Barclays focused on five takeaways:
- Goal to increase franchise target to 98 percent by 2018 from 96 percent by 2017 and 93 percent at the time of Yum China separation.
- Reduction of capital expenditure target to $100 million by 2019.
- Lowering G&A expenses by a cumulative $300 million by 2019.
- Maintaining a targeted capital structure of 5 times EBITDA leverage.
- Expanding cash return target to $13.5 billion by 2019 Vs. previous target of $10 billion by 2018.
Barclays has an Equal-Weight rating and a price target of $92 on the shares of Yum.
At last check, Yum Brands was trading down 0.28 percent at $88.04.
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