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Credit Suisse Says Yum Brands' Raised Guidance Likely To Carry Stock Higher

Credit Suisse Says Yum Brands' Raised Guidance Likely To Carry Stock Higher - Yum! Brands, Inc. NYSE:YUM

Although Yum! Brands, Inc. YUM 3.7% reported “generally weak” 2Q results, Credit Suisse’s Jason West believes the positive comments on recent trends and the increased EBIT guidance could drive the stock up on July 14.

West maintains a Neutral rating on the company, with a price target of $84.

2Q Results

Yum Brands reported its 2Q adjusted EPS at $0.75, marginally ahead of the estimate and the consensus, driven by "other income," tax and shares, and offset by a core EBIT miss, due to shortfalls at KFC and Taco Bell.

China same-store sales were in line at 0 percent, while Taco Bell missed the estimate and the consensus, indicating some loss of momentum and market share losses against the backdrop of a more challenging U.S. fast food environment.

Guidance Raised

Yum Brands raised its core EBIT guidance from 12 percent to 14 percent, attributing the increase to “current trends in China.”

According to the Credit Suisse report, CEO Creed stated that China was “off to a good start” in 3Q, and same-store sales at Pizza Hut China have been positive “in recent weeks,” which is a meaningful improvement from the trends seen in 2Q16.

West believes the company’s commentary suggests that the current guidance of 2 percent same store sales growth in China for 2Q could prove too low.

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Jul 2016JP MorganMaintainsOverweight
Jul 2016NomuraMaintainsBuy
Jul 2016CLSAMaintainsUnderperform

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