Wells Fargo Sees Yum! Brands' Q2 EPS Above Street

The brokerage expects EPS of $0.77 (+11 percent year-over-year, above Street at $0.74). It models 1 percent second quarter China same-store sales (SSS) growth with KFC at +4 percent and Pizza Hut at -10 percent.

According to Wells Fargo, investors would be focusing on:

1. "KFC China's ability to hold positive SSS and color on SSS through the first six weeks of Q3, which began on 6/1"
2. "Post business separation opportunities to deliver G&A efficiencies at 'New Yum!'"
3. "Color on the impact of both increased leverage and share repurchase on EPS in H2 2016"

"We expect YUM to point to modestly improved China segment SSS through the first six weeks of Q3 driven by the combination of new product launches and more favorable multi-year SSS comparisons," analyst Jeff Farmer wrote in a note.

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Farmer, who has a Market Perform rating on the stock, expects Yum to point mid-single-digit SSS growth at KFC and a mid-single-digit decline at Pizza Hut through the first six weeks of third quarter.

A key focus on conference call will be G&A reduction opportunities at "New Yum!"

"With 'New Yum!' expected to be approximately 95 percent franchise post-China spin — we expect the company to field questions about the opportunity to reduce G&A/system unit to the $15,000–$22,000 level seen by the global franchise peers," Farmer highlighted.

Farmer, who has a valuation range of $82.00 to $84.00 on the stock, cut his 2016 EPS view to $3.67 from $3.75 and 2017 EPS estimate to $4.18 from $4.21 to reflect his expectations for both interest expense and share repurchase.

At the time of writing, shares of Yum gained 0.84 percent to $86.48.