Yum! Brands
YUM
$146.75
+1.33%
Yum! Brands, Inc. is the world's second-largest restaurant company by systemwide sales, operating a portfolio of iconic quick-service brands including KFC, Taco Bell, Pizza Hut, and The Habit Burger Grill across more than 63,000 restaurants in 155 markets. With 97% of its locations franchised, the company operates an asset-light, royalty-driven business model that generates 64% of revenue from recurring franchise fees and marketing contributions, distinguishing it from capital-intensive company-operated peers. The current investor narrative is dominated by the company's strategic pivot following the $2.3 billion sale of Pizza Hut to private equity, a move aimed at sharpening focus on the higher-growth KFC and Taco Bell brands while strengthening the balance sheet. However, this transformation unfolds against a challenging consumer environment and intensifying competition in the quick-service restaurant space, with the stock significantly underperforming the broader market over the past year.…
YUM
Yum! Brands
$146.75
Related headlines
Investment Opinion: Should I buy YUM Today?
We assign a Hold rating on YUM, balancing its strong franchise model and cash generation against premium valuation and near-term headwinds. The analyst consensus rating of 'buy' (mean 2.12) and average target price of $171.06 imply 18.1% upside, but this is offset by the stock's 14.6% underperformance versus SPY over three months and the recent downgrade by Argus Research. The core thesis is that YUM's asset-light model and strategic pivot to KFC and Taco Bell offer long-term value, but current execution risks and a stretched valuation warrant caution.
The supporting evidence for a Hold includes: 1) Revenue growth of 12.3% YoY in Q2 2026, accelerating from prior quarters; 2) Strong free cash flow of $1.679 billion TTM, supporting a 1.88% dividend yield; 3) Operating margin of 30.8%, well above the sector average of 15-20%; and 4) Forward PE of 20.9x, which is at the lower end of its historical range but still above peers. However, the PEG ratio of 4.61 and EV/EBITDA of 19.1x indicate a premium valuation relative to growth, and the negative equity and high leverage (debt ratio 1.41) pose financial risks.
The biggest risks that could invalidate the thesis include: 1) A breakdown below the 52-week low of $134.26, which could trigger further selling; 2) Failure to realize earnings growth expectations (forward EPS of $10.65 vs. trailing EPS of $0.04); and 3) Continued margin compression if consumer spending weakens. We would upgrade to Buy if the stock pulls back to the $130-135 range (providing a better risk/reward) or if forward PE compresses below 18x while growth remains intact. We would downgrade to Sell if revenue growth decelerates below 8% or if operating margins fall below 28%. Relative to its history and peers, YUM appears fairly valued to slightly overvalued, with the market pricing in successful execution of its strategic pivot.
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YUM 12-Month Price Forecast
YUM presents a balanced risk/reward profile, with the bull case supported by accelerating revenue growth, strong cash flow, and analyst upside, while the bear case is bolstered by premium valuation, negative equity, and relative underperformance. The stock's low beta of 0.546 makes it a defensive holding, but sector-specific headwinds and execution risks on the Pizza Hut divestiture keep us neutral. We would upgrade to bullish if the stock breaks above $150 with strong volume and forward EPS estimates are revised upward, or if the company demonstrates sustained margin expansion. We would downgrade to bearish if revenue growth decelerates below 8% or if the stock breaks below $134, signaling a deeper correction.
Wall Street consensus
Most Wall Street analysts maintain a constructive view on Yum! Brands's 12-month outlook, with a consensus price target around $171.06 and implied upside of +16.6% versus the current price.
Average Target
$171.06
0 analysts
Implied Upside
+16.6%
vs. current price
Analyst Count
—
covering this stock
Price Range
$147 - $200
Analyst target range
Wall Street maintains a constructive but not uniformly bullish view on YUM, with 22 analysts covering the stock and a consensus recommendation of "buy" (mean rating of 2.12 on a scale where 1 is strong buy and 5 is strong sell). The average price target of $171.06 implies 18.1% upside from the current price of $144.82, suggesting analysts see meaningful recovery potential despite recent weakness. The consensus leans moderately bullish, though the recent downgrade by Argus Research from Buy to Hold on September 24, 2026, and the mixed actions across firms indicate growing caution about near-term execution risks.
The target price range spans from a low of $147.00 to a high of $200.00, representing a spread of 36% from low to high—a relatively wide range that signals elevated uncertainty about the company's trajectory. The high target of $200 assumes successful execution of the Pizza Hut divestiture, accelerating growth at KFC and Taco Bell, multiple expansion back toward historical averages, and a more favorable consumer environment. The low target of $147, just 1.5% above the current price, prices in continued margin pressure, competitive share losses, and a prolonged weak consumer spending environment. Recent institutional actions show a mixed picture: Wells Fargo upgraded from Equal Weight to Overweight on September 10, 2026, and Morgan Stanley upgraded from Equal Weight to Overweight on June 3, 2026, while Argus downgraded to Hold. This divergence in analyst sentiment, combined with the wide target range, suggests the market is in a wait-and-see mode pending clearer evidence that the strategic pivot is delivering results.
Bulls vs Bears: YUM Investment Factors
The bear case currently has stronger evidence due to YUM's severe relative underperformance (-14.6% vs. SPY over three months), premium valuation (PEG of 4.61), and negative equity. However, the bull case is supported by accelerating revenue growth (12.3% YoY), strong free cash flow ($1.679 billion TTM), and analyst upside (18.1% to average target). The most critical tension is whether the Pizza Hut divestiture will successfully unlock higher growth for KFC and Taco Bell, or if the company will continue to face margin pressure and competitive headwinds. Resolution of this debate hinges on upcoming earnings and consumer spending trends.
Bullish
- Revenue growth accelerating: Q2 2026 revenue grew 12.3% YoY to $2.169 billion, up from $1.932 billion in Q2 2025, marking an acceleration from the prior quarter's 15.2% YoY growth. This top-line momentum demonstrates resilience despite a challenging consumer environment.
- Strong free cash flow generation: YUM generated $407 million in free cash flow in Q2 2026 and $1.679 billion on a trailing twelve-month basis. This robust cash generation supports the dividend and potential debt reduction.
- Analyst consensus sees upside: The average analyst price target of $171.06 implies 18.1% upside from the current price of $144.82. With 22 analysts covering the stock and a consensus recommendation of 'buy' (mean rating 2.12), sentiment remains constructive.
- Asset-light model with high margins: With 97% of locations franchised, YUM enjoys an operating margin of 30.8% and a net margin of 19.0% (TTM), well above the restaurant sector average of 15-20%. This model generates recurring royalty fees and requires minimal capital expenditure.
Bearish
- Significant relative underperformance: YUM has underperformed SPY by 14.6 percentage points over three months and 25.1 percentage points over six months. The stock is down 11.4% over three months while the S&P 500 gained 3.1%, indicating severe relative weakness.
- Premium valuation with high PEG: The trailing PE of 27.1x and forward PE of 20.9x are above the restaurant sector average. The PEG ratio of 4.61 signals the stock is expensive relative to its growth rate, leaving little room for execution missteps.
- Negative equity and high leverage: The debt-to-equity ratio of -1.63 and price-to-book ratio of -5.74 reflect negative shareholders' equity. The debt ratio of 1.41 and cash flow coverage ratio of 0.041 highlight significant leverage, though interest coverage of 5.12x provides a reasonable cushion.
- Margin pressure and earnings distortion: Gross margin compressed to 47.3% in Q2 2026 from 46.8% in Q2 2025, and net margin of 39.3% was inflated by a one-time tax benefit of $320 million. Normalized net margin is closer to 21%, indicating underlying profitability challenges.
YUM Technical Analysis
YUM is in a sustained downtrend that has recently shown tentative stabilization signs. The stock trades at $144.82, representing just 29.5% of its 52-week range of $134.26 to $170.14, having declined 11.4% over the past three months and 10.5% over six months. While the 1-year change remains marginally positive at 1.5%, this masks a pronounced deterioration from earlier highs, with the current price sitting only $10.56 above the 52-week low. This positioning near the lower end of the annual range suggests the stock is in a value-seeking phase rather than exhibiting momentum characteristics, though the proximity to support could attract contrarian buyers.
Short-term momentum reveals a critical divergence from the longer-term trend. The 1-month change of -0.23% is essentially flat, contrasting sharply with the 3-month decline of -11.4% and 6-month drop of -10.5%, indicating that the selling pressure may be exhausting. However, this stabilization must be contextualized against severe relative weakness: YUM has underperformed SPY by 14.6 percentage points over three months and 25.1 percentage points over six months, while the broader market gained 3.1% and 14.6% respectively during those periods. The recent 1.3% single-day gain on October 9, following a bounce from the $134-136 support zone, suggests buyers are defending the 52-week low area, though volume of 3.14 million shares provides no clear conviction signal.
Key technical levels are well-defined with the 52-week low at $134.26 serving as critical support and the 52-week high at $170.14 representing major resistance. A breakdown below $134 would likely trigger accelerated selling toward new lows, while a sustained breakout above $150 would signal a potential trend reversal and could target the $160-165 zone. The stock's beta of 0.546 indicates remarkably low volatility relative to the market—approximately 45% less volatile than SPY—which has historically made YUM a defensive holding but has not protected it from the recent sector-specific headwinds. The maximum drawdown of -19.27% from peak levels reflects the magnitude of the current correction, and with a short ratio of 4.33 days, there is moderate short interest that could fuel a squeeze on any positive catalyst.
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
+3.6%
Cumulative gain past year
| Period | YUM Return | S&P 500 |
|---|---|---|
| 1m | +4.2% | +1.8% |
| 3m | -7.2% | +3.5% |
| 6m | -9.4% | +11.2% |
| 1y | +3.6% | +19.1% |
| ytd | -2.5% | +14.1% |
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YUM Fundamental Analysis
YUM's revenue trajectory shows encouraging acceleration despite the challenging environment. Q2 2026 revenue reached $2.169 billion, representing 12.3% year-over-year growth from $1.932 billion in Q2 2025, marking a significant acceleration from the prior quarter's $2.059 billion (which grew 15.2% YoY from $1.787 billion). The sequential progression from $1.98 billion in Q3 2025 to $2.514 billion in Q4 2025, $2.059 billion in Q1 2026, and $2.169 billion in Q2 2026 demonstrates resilient top-line momentum. Segment analysis reveals KFC Global as the largest contributor at $924 million, followed by Taco Bell at $853 million, Pizza Hut at $254 million, and Habit Burger at $139 million, with the Pizza Hut divestiture expected to streamline the portfolio toward higher-growth concepts.
Profitability metrics remain robust with net income of $853 million in Q2 2026, up 128% from $374 million in the year-ago quarter, though this comparison is distorted by a one-time tax benefit of $320 million. The gross margin of 47.3% in Q2 2026 represents a slight compression from 46.8% in Q2 2025, while the operating margin of 30.2% remains healthy for the restaurant sector. The net margin of 39.3% in Q2 2026 reflects the tax benefit distortion, with the more normalized Q1 2026 net margin of 21.0% and Q4 2025's 21.3% providing a clearer picture of underlying profitability. The trailing twelve-month net margin of 19.0% and operating margin of 30.8% demonstrate the inherent profitability of the franchise-heavy model.
The balance sheet presents a complex picture with negative shareholders' equity, evidenced by the debt-to-equity ratio of -1.63 and price-to-book ratio of -5.74, a common characteristic of heavily franchised businesses that return capital through buybacks and dividends. The current ratio of 1.35 indicates adequate short-term liquidity, while free cash flow of $407 million in Q2 2026 and $1.679 billion on a trailing twelve-month basis demonstrates strong cash generation. However, the cash flow coverage ratio of just 0.041 and the debt ratio of 1.41 highlight the company's significant leverage, with interest coverage of 5.12 times providing a reasonable but not exceptional cushion. The dividend payout ratio of 50.6% and dividend yield of 1.88% reflect a balanced approach to shareholder returns, though the negative ROE of -21.3% is a mathematical artifact of negative equity rather than operational weakness.
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?
Given YUM's positive net income, the PE ratio is the appropriate primary valuation metric. The trailing PE of 27.1x compares to a forward PE of 20.9x, implying the market expects earnings growth of approximately 30% over the next twelve months—a significant acceleration from the current EPS of $0.04 (distorted by one-time items) to the estimated forward EPS of $10.65. This wide gap between trailing and forward multiples suggests the market is pricing in substantial earnings recovery and the benefits of the Pizza Hut divestiture, though the current trailing PE is inflated by the low trailing EPS figure.
Relative to the broader restaurant sector, YUM's valuation appears stretched on most metrics. The price-to-sales ratio of 5.12x and EV/EBITDA of 19.1x represent premiums to typical restaurant industry averages of approximately 2-3x and 12-14x respectively, reflecting the company's superior franchise model and brand strength. The PEG ratio of 4.61 signals that the stock is expensive relative to its growth rate, while the price-to-free-cash-flow ratio of 20.9x and EV/sales of 5.93x further confirm the premium valuation. This premium is partially justified by YUM's industry-leading margins (30.8% operating margin vs. sector average of 15-20%) and asset-light model, but the current multiple leaves little room for execution missteps.
Examining historical ratios reveals that YUM's current PE of 27.1x is above its recent quarterly range, which has fluctuated between 12.9x (Q2 2026) and 43.7x (Q1 2025), with the median around 24-25x. The PS ratio of 5.12x is near the lower end of its historical range of 15.9x to 24.8x on a quarterly basis, though this comparison is complicated by the different calculation methodologies. The forward PE of 20.9x is more informative, sitting at the lower end of the historical band and suggesting that if earnings materialize as expected, the stock could be reasonably valued. However, the market's skepticism—evidenced by the 14.6% relative underperformance over three months—indicates concerns about whether these growth expectations will be met.
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
YUM faces significant financial and operational risks stemming from its highly leveraged balance sheet and negative equity. The debt-to-equity ratio of -1.63 and price-to-book ratio of -5.74 indicate that liabilities exceed assets, a common trait of franchised models but one that limits financial flexibility. The cash flow coverage ratio of just 0.041 is alarmingly low, suggesting that operating cash flow barely covers current liabilities, and with interest coverage of 5.12x, a decline in earnings could quickly strain debt servicing. Additionally, the company's revenue is concentrated in KFC (42.6% of Q2 2026 revenue) and Taco Bell (39.3%), making it vulnerable to brand-specific issues or regional economic downturns, particularly in international markets where 72% of locations reside.
Market and competitive risks are pronounced given YUM's premium valuation and sector headwinds. The forward PE of 20.9x and EV/EBITDA of 19.1x are above typical restaurant industry averages of 12-14x, leaving the stock susceptible to multiple compression if growth disappoints. The beta of 0.546 indicates low volatility relative to the market, but this has not protected YUM from sector-specific selling pressure, as evidenced by its 14.6% underperformance versus SPY over three months. Intensifying competition in the quick-service restaurant space, particularly from Domino's and other fast-food chains, could erode market share. Recent news of Domino's CEO change and lowered outlook highlights broader sector challenges, while YUM's own Pizza Hut divestiture introduces execution risk and potential disruption.
The worst-case scenario for YUM involves a combination of consumer weakness, execution missteps on the Pizza Hut sale, and margin deterioration. If consumer spending declines further, KFC and Taco Bell could see same-store sales declines, pressuring royalty revenues. A breakdown below the 52-week low of $134.26 would likely trigger accelerated selling, with the next support level unclear. From the current price of $144.82, a drop to the 52-week low represents a 7.3% decline, but if the bear case fully materializes, the stock could fall to the analyst low target of $147 (which is actually above current price) or lower, potentially testing $120-125, implying a 14-17% downside. The maximum drawdown of -19.27% from peak levels shows the magnitude of potential losses in a severe downturn.
FAQ
The key risks for YUM include: 1) Financial risk from high leverage and negative equity, with a debt-to-equity ratio of -1.63 and cash flow coverage of only 0.041, which could strain if earnings decline; 2) Competitive risk from intensifying QSR competition, as seen with Domino's recent challenges, which could erode YUM's market share; 3) Macro risk from consumer spending weakness, given YUM's sensitivity to economic cycles, despite its low beta of 0.546; and 4) Company-specific risk related to the Pizza Hut divestiture, including execution missteps and potential disruption. The most severe risk is a consumer-led recession that compresses same-store sales and margins, potentially driving the stock below its 52-week low of $134.26.
Our 12-month forecast for YUM includes three scenarios: a bull case (25% probability) targeting $180-200, driven by successful execution of the Pizza Hut sale and accelerating growth; a base case (55% probability) targeting $160-175, assuming steady growth and margin stability; and a bear case (20% probability) targeting $134-147, reflecting consumer weakness and execution risks. The base case is most likely, with the key assumption that revenue grows 10-12% YoY and operating margins hold around 30%. The analyst average target of $171.06 aligns with our base case, implying 18.1% upside from the current price of $144.82.
YUM appears fairly valued to slightly overvalued relative to its peers and history. The trailing PE of 27.1x and forward PE of 20.9x are above the restaurant sector average, while the PEG ratio of 4.61 indicates a premium relative to expected growth. The price-to-sales ratio of 5.12x and EV/EBITDA of 19.1x also exceed typical industry averages of 2-3x and 12-14x, respectively. However, the forward PE is at the lower end of its historical range, suggesting that if earnings materialize as expected (forward EPS of $10.65), the valuation could be justified. The market is pricing in successful execution of the Pizza Hut sale and accelerating growth at KFC and Taco Bell, leaving little room for error.
YUM may be a good buy for patient, income-focused investors, but it carries above-average risk at current levels. The stock trades at $144.82, with analysts' average target of $171.06 implying 18.1% upside, and it offers a 1.88% dividend yield. However, the premium valuation (forward PE of 20.9x, PEG of 4.61) and negative equity (debt-to-equity of -1.63) are concerns. The biggest downside risk is a break below the 52-week low of $134.26, which could lead to further declines. For those with a long-term horizon and tolerance for volatility, YUM's strong brands and cash flow make it a reasonable holding, but near-term headwinds suggest waiting for a better entry point or clearer execution on the Pizza Hut divestiture.
YUM is more suitable for long-term investment (minimum 2-3 years) given its defensive characteristics, low beta of 0.546, and stable dividend yield of 1.88%. The company is in a transition phase with the Pizza Hut divestiture, and near-term volatility is likely as the market assesses execution. Short-term trading could be risky due to the stock's recent downtrend and relative underperformance, though the proximity to the 52-week low of $134.26 might offer tactical entry points. For long-term investors, YUM's strong brands, global footprint, and cash generation provide a solid foundation, but patience is required to realize the benefits of the strategic pivot.