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Analyst: Yum Brands' Recovery Year Is Now 2016

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Yum Brands Inc. (NYSE: YUM)'s troubled operations in China will turn around in the second half of this year, with 2016 billed as the "new" recovery year, according to an analyst on Wall Street.

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 KFC, Pizza Hut and Taco Bell gets a third of its profits.

Of the 23 analysts following Yum, 14 rate the company at Hold, one is at Sell, while eight maintain Buy ratings (or the equivalent).

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Yum, based in Louisville, Kentucky, changed hands recently at $73.38, down $0.55.

A sales recovery in China is the "single most important factor" influencing Yum shares, Palmer noted. He maintained an $82 target.

Last week, the company 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 said he expects a gain of 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," he added.

Palmer specifically pointed to the company's fourth quarter same-store sales growth in operations outside of China, which came in at 4 percent. He concluded that rate compares favorably with other fast-food restaurants.

Latest Ratings for YUM

Nov 2017UBSMaintainsBuy
Nov 2017BMO CapitalMaintainsMarket Perform
Nov 2017Morgan StanleyMaintainsEqual-Weight

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