Yum's Got Appetizing Long Term Offerings

I started a small position in YUM! Brands (YUM) at $33.60 for my long term stock portfolio. I have had YUM! on my radar for awhile and it piqued my interest when I heard Karen Finerman discussing YUM! on CNBC’s Fast Money. She discussed how YUM! was trading at a cheaper valuation than other casual dining chains like Cheesecake Factory (CAKE). YUM! is trading at 15 times earnings for the current fiscal year. While I don’t think that YUM! is expensive at $33 per share, I don’t think the shares are a steal either. YUM!’s shares appear fairly valued based on current earnings expectations of $2.09 per share.

I think that YUM! is attractive based on its long term growth prospects. YUM is the largest quick service restaurant chain in the U.S. owning KFC, Taco Bell, Pizza Hut, Long John Silver and Wing Express franchises. The story for YUM! is in its international growth where YUM! is growing in the high teens overseas especially China. For the 2nd quarter YUM! grew earnings per share (EPS) by 10%. This is in the midst of a recession that has caused same store sales to decline 1% domestically and 4% internationally. Despite decreased sales YUM! was able to improve profitability. Net income increased by 35% due to higher margins on sales.