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Why Yum China's CEO Departure Doesn't Look Like A Warning Sign

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Why Yum China's CEO Departure Doesn't Look Like A Warning Sign
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Yum! Brands, Inc. (NYSE: YUM)'s long-time China CEO, Sam Su, announced his plans to retire. The executive served as Acting General Manager for China back in December 1989 when China KFC had only four units and has been with the company since then in various senior roles.

Jefferies: Business Getting ‘Easier' In China

Andy Barish of Jefferies commented in a note that it is "tough to read into the decision" behind Su's retirement but his duties will be assumed by a Micky Pant, a "very capable" restaurant executive within Yum Brands.

Barish continued that Yum Brands' Chinese business has been "getting easier" with same-store sales turning "significantly" positive. However, the analyst noted that his longer-term revenue growth and brand positioning concerns in the increasingly competitive market remain.

Barish also added that the recent economic slowdown in China and the devaluation of its currency "are likely not positives" for Yum Brands, as Yum China comprises nearly 40 percent of company wide operating profit.

Finally, the analyst pointed out that Pant's appointment does not represent a "structure" change, as the company will carry on with its already existing initiatives to drive growth in China.

Bottom Line

Bottom line, Barish suggested the best way for Yum Brands to improve shareholder value would be to return the China business back to its historical financial profile and growth rates. Of note, this could be more difficult given the size of the business now versus what it was 20 years ago.

In Barish's eyes, though, the loss of Su isn't an outright warning sign. Shares remain Hold rated with an unchanged $80 price target.

Elsewhere on the Street, Brian Bittner of Oppenheimer reiterated an Outperform rating and $105 price target on the stock. The analyst noted it's "good to hear" the company announce publicly that comps are rebounding, particularly given the elevated economic fears in the country.

Yum Brands last traded slightly above $86 on Wednesday morning.

Latest Ratings for YUM

DateFirmActionFromTo
Jun 2017MizuhoInitiates Coverage OnNeutral
May 2017Argus ResearchUpgradesHoldBuy
May 2017Goldman SachsUpgradesSellNeutral

View More Analyst Ratings for YUM
View the Latest Analyst Ratings

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