Yum! Brands
YUM
$139.84
+2.10%
Yum! Brands, Inc. operates as the world's second-largest restaurant company by systemwide sales, generating over $68 billion annually across more than 63,000 restaurants in 155 markets through its KFC, Taco Bell, Pizza Hut, and Habit Burger Grill brands. The company's competitive identity rests on an asset-light, 97%-franchised model that converts recurring royalty and marketing contributions into high-margin, capital-efficient cash flows, with 72% of locations situated in international markets. The current investor narrative is dominated by the announced $2.3 billion sale of the struggling Pizza Hut brand to private equity, a strategic pivot designed to sharpen focus on the faster-growing KFC and Taco Bell banners while strengthening the balance sheet. This portfolio reshaping, combined with a challenging global consumer spending environment and soft same-store sales trends, has made YUM a battleground stock between bulls betting on post-divestiture margin expansion and bears worried about near-term earnings dilution and decelerating system growth.…
YUM
Yum! Brands
$139.84
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Investment Opinion: Should I buy YUM Today?
The synthesized recommendation is a Hold, balancing the stock's deep value appeal against significant near-term headwinds. The analyst consensus is Buy with an average target of $172.65, implying 26.8% upside, but the stock's severe underperformance and technical weakness suggest caution until a catalyst emerges. The core thesis is that YUM's asset-light model and planned Pizza Hut divestiture offer long-term margin expansion, but near-term earnings quality and consumer weakness warrant a wait-and-see approach. Supporting evidence includes Q2 2026 revenue growth of 12.27% YoY, robust operating margin of 30.80%, and free cash flow of $1.679 billion TTM, which underpin the dividend (1.88% yield) and buybacks. However, the trailing PE of 27.06x and PEG of 4.61 indicate a premium valuation relative to growth, while the forward PE of 19.50x suggests the market expects an earnings recovery that may not materialize if consumer spending remains soft. The stock's 26.8% upside to analyst targets is compelling, but the low target of $147 offers only 8% upside, and the wide target range ($147-$200) reflects uncertainty. Key risks include execution risk on the Pizza Hut sale, potential earnings dilution, and continued same-store sales weakness; a downgrade to Sell would occur if revenue growth decelerates below 8% or if operating margins fall under 28%. An upgrade to Buy would require evidence of successful divestiture integration, same-store sales acceleration, and a PE compression below 18x. Relative to its history, the stock is fairly valued to slightly overvalued, with the PE in the middle-to-upper portion of its historical range, but the PS ratio of 5.12x is below historical highs, suggesting some support. Overall, YUM is a Hold for investors seeking income and long-term value, but not a compelling Buy until fundamental catalysts emerge.
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YUM 12-Month Price Forecast
The forward-looking view is neutral with medium confidence, as the company's solid revenue growth and high margins are offset by earnings quality concerns and technical weakness. The Pizza Hut divestiture is a potential catalyst, but execution risks and a challenging consumer environment could delay benefits. Valuation appears fair to slightly rich, with the forward PE of 19.50x pricing in a recovery that may not materialize if same-store sales remain soft. Analyst sentiment is positive but in flux, as evidenced by recent mixed ratings. I would upgrade to bullish if the stock breaks above $150 with improving same-store sales and successful divestiture completion, and downgrade to bearish if it breaks below $134.26 or if earnings miss significantly.
Wall Street consensus
Most Wall Street analysts maintain a constructive view on Yum! Brands's 12-month outlook, with a consensus price target around $171.20 and implied upside of +22.4% versus the current price.
Average Target
$171.20
0 analysts
Implied Upside
+22.4%
vs. current price
Analyst Count
—
covering this stock
Price Range
$147 - $200
Analyst target range
YUM is covered by 22 analysts with a consensus recommendation of Buy and a recommendation mean of 2.12, reflecting a moderately bullish stance despite the stock's severe underperformance. The average target price of $172.65 implies approximately 26.8% upside from the current price of $136.12, a substantial gap that suggests analysts believe the sell-off has been overdone relative to fundamental value. The consensus EPS estimate of $10.81 for the forward period, against a trailing EPS of just $0.037, implies an enormous earnings recovery that underpins the bullish targets, though the wide dispersion between the low EPS estimate of $10.37 and the high of $11.40 is relatively tight, indicating reasonable confidence in the earnings trajectory. The bullish consensus stands in sharp contrast to the stock's price action, creating a classic disconnect that could resolve either through a sharp rally if earnings materialize or through target downgrades if the consumer environment deteriorates further. The target range spans from a low of $147.00 to a high of $200.00, a spread of $53 or roughly 36% of the low target, which signals meaningful uncertainty about the company's post-Pizza Hut future. The high target of $200 would require a re-rating to roughly 18.5x forward EPS of $10.81 and assumes successful execution of the divestiture, margin expansion from the streamlined portfolio, and a recovery in global consumer spending, particularly in YUM's key international markets. The low target of $147, while still 8% above the current price, prices in a scenario of continued same-store sales weakness, margin compression from inflationary pressures, and a slower-than-expected benefit from the Pizza Hut sale. Recent institutional actions show a mixed but slightly positive tilt, with Wells Fargo upgrading to Overweight from Equal Weight on September 10, 2026, and Morgan Stanley upgrading to Overweight from Equal Weight on June 3, 2026, while Argus Research downgraded to Hold from Buy on September 24, 2026, suggesting that analyst sentiment is in flux and the stock's recent weakness has begun to test conviction.
Bulls vs Bears: YUM Investment Factors
The bear case currently has stronger evidence due to the stock's severe underperformance, deteriorating technicals, and questionable earnings quality, with shares down 17.37% over three months and trading near 52-week lows. However, the bull case is supported by solid revenue growth, high margins, and a significant analyst target upside of 26.8%, suggesting the sell-off may be overdone. The most critical tension is whether the Pizza Hut divestiture will unlock value through margin expansion and focus, or lead to earnings dilution and growth deceleration. Resolution hinges on the company's ability to execute the sale smoothly and reinvigorate same-store sales at KFC and Taco Bell amid a challenging consumer environment. Given the low beta and oversold conditions, a contrarian investor might see opportunity, but the momentum remains negative until a fundamental catalyst emerges.
Bullish
- Strong Revenue Growth and Margin Profile: Q2 2026 revenue grew 12.27% YoY to $2.169 billion, with gross margin at 47.26% and operating margin at 30.80%, well above restaurant industry averages. The asset-light, 97% franchised model generates high-margin royalty streams, supporting consistent profitability.
- Pizza Hut Divestiture Sharpens Focus: The $2.3 billion sale of Pizza Hut removes a slower-growing, lower-margin drag, allowing management to concentrate on KFC and Taco Bell, which together account for 82% of divisional revenue. Proceeds can be used to reduce debt or reinvest in higher-growth brands.
- Analyst Consensus Points to Significant Upside: 22 analysts have a Buy consensus with an average target price of $172.65, implying 26.8% upside from the current $136.12. The low target of $147 still suggests 8% upside, indicating a favorable risk/reward skew according to the analyst community.
- Attractive Forward Valuation and Dividend: Forward PE of 19.50x represents a 28% discount to trailing PE of 27.06x, reflecting expected earnings recovery. The dividend yield of 1.88% with a sustainable 50.6% payout ratio offers income support while waiting for the turnaround.
Bearish
- Severe Underperformance and Downtrend: YUM is down 10.06% over the past year and 9.55% YTD, massively underperforming SPY's 15.01% and 12.86% gains. The 3-month decline of 17.37% shows accelerating selling pressure, with the stock sitting at the very bottom of its 52-week range.
- Earnings Quality Concerns: Q2 2026 net income of $853 million was inflated by a $320 million tax benefit, while pre-tax income actually declined to $533 million from $499 million a year earlier. This suggests underlying profitability may be weaker than reported.
- Premium Valuation with Weak Growth: Trailing PE of 27.06x and PEG of 4.61 indicate the stock is expensive relative to its growth rate. EV/EBITDA of 19.14x and PS of 5.12x are premium multiples for a company growing revenue at 12%, leaving little margin of safety.
- Negative Equity and High Debt: Debt-to-equity ratio of -1.63 and price-to-book of -5.74 reflect negative shareholders' equity from aggressive buybacks. Cash flow-to-debt ratio of just 0.041 indicates substantial debt relative to internally generated cash, limiting financial flexibility.
YUM Technical Analysis
YUM is mired in a sustained downtrend, with the shares down 10.06% over the trailing twelve months and 9.55% year-to-date, a stark underperformance against a SPY that has gained 15.01% and 12.86% over the same respective periods. At a current price of $136.12, the stock sits just 1.4% above its 52-week low of $134.26 and a mere 20.0% of the way up from that floor toward the 52-week high of $170.14, meaning it is trading at the very bottom of its annual range. This positioning signals persistent distribution and negative momentum rather than a value opportunity, as the stock has failed to establish any durable base despite repeated attempts to rally off the lows. The 1-month change of -10.02% and 3-month change of -17.37% reveal that selling pressure is not only intact but accelerating, with the decline steepening over the shorter horizon. The 6-month change of -12.79% confirms that the deterioration has been building through the year, and the relative strength readings of -10.61 over one month and -20.71 over three months underscore how decisively YUM is lagging the broader market. With no RSI data provided, the magnitude and persistence of these declines suggest the stock is deeply oversold on a short-term basis, but the absence of any positive divergence means any bounce would likely be a counter-trend rally within a larger downtrend. The 52-week low at $134.26 represents the critical support level, and a decisive breakdown below it would open the door to further capitulation and likely trigger momentum-driven selling. To the upside, the 52-week high at $170.14 stands as formidable resistance, roughly 25% above the current price, and reclaiming even the $150 area would require a fundamental catalyst. With a beta of just 0.551, YUM is roughly 45% less volatile than the broader market, which means its drawdown is not a function of high-beta market sensitivity but rather company-specific and sector-specific headwinds, and position sizing should account for the fact that this low-beta profile offers limited downside cushion when idiosyncratic negative news flow dominates.
Beta
0.55
0.55x market volatility
Max Drawdown
-19.3%
Largest decline past year
52-Week Range
$134-$170
Price range past year
Annual Return
-6.0%
Cumulative gain past year
| Period | YUM Return | S&P 500 |
|---|---|---|
| 1m | -7.2% | +1.2% |
| 3m | -15.4% | +4.5% |
| 6m | -13.0% | +14.6% |
| 1y | -6.0% | +16.0% |
| ytd | -7.1% | +14.3% |
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YUM Fundamental Analysis
YUM's revenue trajectory remains solidly positive, with Q2 2026 revenue of $2.169 billion representing 12.27% year-over-year growth from the $1.932 billion reported in Q2 2025, and the sequential progression from $2.059 billion in Q1 2026 to $2.169 billion in Q2 2026 shows continued top-line expansion. The segment breakdown reveals that KFC Global is the largest contributor at $924 million, followed by Taco Bell Global at $853 million, Pizza Hut Global at $254 million, and Habit Burger at $139 million, meaning the two brands being retained and prioritized, KFC and Taco Bell, account for roughly 82% of divisional revenue. The pending divestiture of Pizza Hut removes a slower-growing, lower-margin drag on the portfolio, and the fact that revenue grew 12.27% even with Pizza Hut included suggests the core KFC and Taco Bell engines are performing well. Profitability is robust, with Q2 2026 net income of $853 million on a 39.33% net margin, gross margin of 47.26%, and operating margin of 30.80%, all of which are exceptional for the restaurant industry and reflect the royalty-heavy, franchise-driven model. The net income figure more than doubled from $374 million in Q2 2025 to $853 million in Q2 2026, though this was substantially boosted by a $320 million income tax benefit that produced a negative effective tax rate, meaning the underlying pre-tax income of $533 million was actually down from $499 million a year earlier. Gross margin has been relatively stable in the 44.5% to 47.3% range over the past several quarters, and the operating margin of 30.80% remains well above typical restaurant-sector levels, but investors should be cautious about extrapolating the Q2 net margin given the one-time tax benefit. On the balance sheet, the company's negative shareholders' equity, reflected in a debt-to-equity ratio of -1.63 and a price-to-book ratio of -5.74, is a legacy of aggressive share repurchases and is common among mature franchisors, but it does limit financial flexibility. Free cash flow on a trailing twelve-month basis stands at $1.679 billion, and the most recent quarter generated $407 million in FCF from $507 million in operating cash flow against $100 million in capital expenditures, a healthy 80.3% FCF conversion rate. The current ratio of 1.35 provides adequate short-term liquidity, and the company returned capital aggressively in Q2 2026 with $206 million in dividends paid and $489 million in stock repurchased, though the debt-to-equity ratio of -1.63 and the cash flow-to-debt ratio of just 0.041 indicate that debt levels remain substantial relative to internally generated cash.
Quarterly Revenue
$2.2B
2026-06
Revenue YoY Growth
+12.3%
YoY Comparison
Gross Margin
47.3%
Latest Quarter
Free Cash Flow
$1.7B
Last 12 Months
Revenue & Net Income Trends (2 Years)
Revenue Breakdown
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Valuation Analysis: Is YUM Overvalued?
Because YUM reported positive trailing net income, the PE ratio is the appropriate primary valuation metric, and the stock trades at a trailing PE of 27.06x against a forward PE of 19.50x, a 28% compression that implies the market expects meaningful earnings growth over the next twelve months. The gap between trailing and forward PE is largely explained by the depressed trailing earnings base, which was weighed down by the Q1 2026 tax expense and the Q2 2025 comparison, while the forward estimate of $10.81 in EPS reflects expectations of normalized profitability post-Pizza Hut divestiture. The PEG ratio of 4.61, however, signals that the stock is expensive relative to its expected growth rate, suggesting the forward earnings recovery may already be substantially priced in. On a peer-relative basis, the data does not provide a direct industry average PE, but YUM's PS ratio of 5.12x and EV/EBITDA of 19.14x are premium multiples for a restaurant company, and the EV/Sales of 5.74x is elevated for a business growing revenue at roughly 12%. The dividend yield of 1.88% with a payout ratio of 50.6% indicates a moderate income component that is well covered by earnings, providing some valuation support. Historically, YUM's PE ratio has ranged from a low of 12.89x in Q2 2026 to a high of 43.71x in Q1 2025, with the current 27.06x sitting in the middle-to-upper portion of that band, while the PS ratio of 5.12x is actually below the historical range of 15.90x to 24.79x seen over the past several years, though that comparison is distorted by the different share count and revenue base in the historical data. The more relevant historical context is that YUM's PE has compressed from the 30x-40x range seen in 2023-2024 to the mid-20s today, reflecting the market's diminished growth expectations, and the current multiple offers little margin of safety if earnings disappoint.
PE
27.1x
Latest Quarter
vs. Historical
Mid-Range
5-Year PE Range 13x~36x
vs. Industry Avg
N/A
Industry PE ~N/A*
EV/EBITDA
19.1x
Enterprise Value Multiple
Investment Risk Disclosure
Financial and operational risks are significant, primarily stemming from YUM's negative shareholders' equity (debt-to-equity of -1.63) and high debt burden, with a cash flow-to-debt ratio of only 0.041. The company's Q2 2026 net income was boosted by a one-time $320 million tax benefit, masking a decline in pre-tax income to $533 million from $499 million a year earlier, which raises concerns about sustainable profitability. Additionally, the asset-light model relies heavily on franchisee health; any weakness in franchisee sales or closures could pressure royalty streams, and the Pizza Hut divestiture introduces execution risk and potential earnings dilution. Market and competitive risks include YUM's premium valuation relative to peers, with a trailing PE of 27.06x and PEG of 4.61, leaving little room for error if growth disappoints. The stock's low beta of 0.551 offers limited downside cushion in a market downturn, as idiosyncratic risks dominate; its 10.06% annual decline contrasts sharply with SPY's 15.01% gain, highlighting sector-specific headwinds. Intense competition in the quick-service restaurant space, particularly from Domino's and other pizza chains, could further erode market share, while global consumer spending weakness, especially in international markets (72% of locations), remains a persistent threat. In a worst-case scenario, a failed Pizza Hut sale, continued same-store sales declines, and margin compression could drive the stock to its 52-week low of $134.26, representing a 1.4% decline from current levels, but a more severe sell-off could push it below $120, implying a 12% loss. The analyst low target of $147 is above the current price, but if earnings miss and sentiment sours, the stock could retest its 2025 lows, with a max drawdown of 19.27% observed historically. Investors could face a 15-20% downside from current levels in an adverse scenario, emphasizing the need for caution.
FAQ
The key risks include: 1) Financial risk: negative shareholders' equity (debt-to-equity of -1.63) and high debt levels, with a cash flow-to-debt ratio of only 0.041, limiting financial flexibility. 2) Earnings quality risk: Q2 2026 net income was inflated by a $320 million tax benefit, while pre-tax income declined YoY, raising concerns about sustainable profitability. 3) Execution risk: the $2.3 billion Pizza Hut sale may not deliver expected benefits and could cause near-term earnings dilution. 4) Market and competitive risk: intense competition in the QSR space and weak global consumer spending, particularly in international markets (72% of locations), could pressure same-store sales. These risks are ranked from high to moderate, with financial and earnings quality risks being the most severe.
The 12-month forecast includes three scenarios: Bull case (25% probability) targets $172-$200, assuming successful Pizza Hut divestiture, margin expansion, and same-store sales acceleration. Base case (55% probability) targets $147-$172, expecting gradual recovery with modest same-store sales growth and stable margins. Bear case (20% probability) targets $120-$147, involving failed divestiture, negative same-store sales, and margin compression. The base case is most likely, with a key assumption that the Pizza Hut sale completes smoothly and consumer spending remains stable. However, the wide target range reflects significant uncertainty, and the stock could remain range-bound until clearer catalysts emerge.
YUM appears fairly valued to slightly overvalued on a trailing basis, with a PE of 27.06x and EV/EBITDA of 19.14x, both premium multiples for the restaurant sector. The forward PE of 19.50x suggests the market expects significant earnings growth, but the PEG ratio of 4.61 indicates the stock is expensive relative to its expected growth rate. Compared to its own history, the PE has compressed from the 30x-40x range in 2023-2024 to the mid-20s, but the PS ratio of 5.12x is below historical highs, providing some support. The market is pricing in a successful Pizza Hut divestiture and margin expansion, but if these expectations are not met, the stock could be vulnerable to further downside. Overall, the valuation offers little margin of safety, and the stock is not undervalued unless earnings accelerate meaningfully.
YUM presents a mixed risk/reward profile: the stock trades at $136.12, near its 52-week low, with analyst targets implying 26.8% upside to $172.65. However, the trailing PE of 27.06x and PEG of 4.61 suggest a premium valuation relative to growth, and the company's Q2 2026 earnings were boosted by a one-time tax benefit, masking a decline in pre-tax income. The biggest downside risk is a break below the 52-week low of $134.26, which could trigger further selling. For income-focused investors, the 1.88% dividend yield and low beta of 0.551 offer some appeal, but the stock is not a compelling buy until there is clearer evidence of same-store sales recovery and successful execution of the Pizza Hut divestiture. It may be suitable for contrarian value investors with a long-term horizon, but near-term momentum remains negative.
YUM is more suitable for long-term investment, given its low beta (0.551), stable dividend (1.88% yield), and asset-light business model that generates consistent free cash flow ($1.679 billion TTM). The company is in a transitional phase with the Pizza Hut divestiture, which may take several quarters to fully benefit earnings and margins. Short-term trading is risky due to negative momentum and technical weakness, with the stock down 17.37% over three months. A suggested minimum holding period is 2-3 years to allow for the divestiture benefits to materialize and for potential multiple expansion. Income investors may appreciate the dividend, but growth-oriented investors should wait for evidence of same-store sales recovery before committing.