Stock of the Day - January 20, 2009

YUM! Brands (YUM)

In a time of economic darkness and recession, Yum! Brands (YUM) shines through with the light of expansion and development. YUM has not just been surviving… the fast food corporation that parents KFC, Taco Bell, and Pizza Hut has been thriving. It’s very hard to find anything that the company is doing badly and very easy to spot the positive aspects of the company. Let me tell you why I think you should join me as I invest heavily in YUM.

If I had to describe YUM with one word it would be growth. This is because they’ve been growing in every aspect of their business. Their Earnings Per Share has been growing for the past 20 straight quarters. The distance in popularity between YUM and competitors like McDonalds (MCD) and Burger King (BKC) in China has been increasing in YUM’s favor. To cap it off, their overall international business has been growing dramatically for the past few years and will continue to grow throughout this year.

2008 should mark YUM’s seventh straight year of double-digit EPS growth with projected growth of 12%. The company has boldly stated that, despite macroeconomic conditions, they predict EPS will grow another 10% in 2009. The best part about this prediction is that most analysts agree that it’s possible! It’s possible because YUM has been increasing same-store-sales for 20 straight years, they opened 1445 new international stores in 2008, and none of their debt will mature for many years to come.

Numbers aside, you should love YUM simply because of the quality of their brand. Taco Bell, KFC, and Pizza Hut are staples in the global fast food industry. They make cheap food that tastes great and satisfies their customers. They have also been adding more items to their menu recently. Pizza Hut introduced its new pasta line last year, and it quickly became a $500 million dollar addition for the company. This year, KFC will introduce its new Kentucky Grilled Chicken, which should significantly help the company’s sales by giving consumers a healthier option.

Their popular food and amazing growth rate hasn’t changed at all, but their stock price has… this fact should key you into the company’s real value. YUM’s stock price has jumped up to $28.66 since it dropped to the low 20’s in late November. Before the market slid disastrously, the company’s shares were trading at around $38. I believe the drop in share price was not justified, and I expect the company to reach the high $30 levels again and eventually surpass that level in the long run. The market is simply undervaluing this precious and growing business. Investors have had their confidence shaken because of the recent volatility in the market, but to be successful we have to capitalize on that fear. I advise you to put some effort into analyzing this stock, and I hope that you’ll come to the same conclusion that I have.

 

-Matt Schwartz

College Trillionaire