YUM – Market expectations are for record-high profitability, but management has concerns about Taco Bell International, franchisees, and KFC growth

• YUM! Brands, Inc. (YUM:USA) currently trades near recent averages relative to UAFRS-based (Uniform) Earnings, with a 25.1x Uniform P/E. At these levels, markets have bullish expectations for the firm, but management has concerns about Taco Bell International development, franchisee transitions, and KFC unit and sales growth
• Specifically, management may be concerned about the pace of their Taco Bell International development, and they may lack confidence in their ability to transition stores to more committed and capable franchisees. Moreover, they may be exaggerating the quality of their technology teams, the potential of their Grubhub and QuikOrder transactions, and their ability to sustain KFC new unit and same-store sales growth, particularly in Eastern Europe. Lastly, they may be concerned about their plant-based meat alternative test launches and about their ability to improve communication for their Recipe for Good initiative.