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Yum China's Growth Story Remains Unchanged

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Yum China's Growth Story Remains Unchanged
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Earnings Scheduled For May 1, 2018

Yum China Holdings Inc (NYSE: YUMC)'s earnings report on Wednesday sent the stock tumbling by more than 7 percent ahead of Thursday's market open. The restaurant operator of KFC and Pizza Hut locations in China reported that its revenue fell short of expectations in the quarter, which begs the question: Is now a time to buy the stock?

On one hand, investors could be taking some cash off the table as Yum China's stock is up more than 50 percent since it was split from its parent company last year, Gadfly's Shelly Banjo noted. On the other hand, it is possible that the company's earnings report was tasked with living up to Wall Street's un-realistic targets.

As early as March, Wall Street was modeling Yum China to earn $0.20 per share but heading into the print the estimate rose to $0.27 per share — a number the company matched in its earnings report, Banjo continued. Meanwhile, earnings per share growth at established restaurants, one of the most closely followed metrics, easily beat the "already lofty" forecast.

Yum China Playing The Long Game

Yum China's long-term growth story is still very much in play, Banjo continued. The country remains under-penetrated as evidence by 90 new restaurants opens and a remodeling of another 197, with lots more to come.

Yum China is also taking its time and carefully planning out various initiatives to drive growth, including digital payments, delivery and loyalty programs. At the same time, the company is looking toward M&A to help with these initiatives and recently acquired a controlling stake in an online food delivery platform called Daojia.

Bottom line, Banjo is giving Yum China the "benefit of the doubt" as it needs to work out "all the kinks" before it can blossom.

"It makes sense for Yum China investors to want a mid-meal palate cleanser," she concluded. "But they're going to want to come back to the table for further courses."

At last check, shares of Yum China were down 11.36 percent at $35.59.

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Image Credit: "A Pizza Hut restaurant in Yingwanzhen, Changsha, Hunan, China. photographed by Cncs, April 15, 2006." GNU Free Documentation License, via Wikimedia Commons

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