Meetings with Yum! Brands Inc's (NYSE:YUM) top management and store tours indicate that KFC can "thrive" in competitive markets and that it has a long runway for same-store sales growth and units, according to BofA Securities analyst Sara Senatore
The Yum! Brands Analyst: Senatore maintained a Neutral rating and price target of $191.
The Yum! Brands Thesis: KFC added around 2,000 net new units last year, on its base of about 34,000 stores, Senatore said in the note.
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While China accounted for the lion's share of net new stores, emerging markets in Asia still have "significant white space," with only 248 stores added in India and Thailand combined, the analyst noted. She added that there are opportunities in developed markets as well, including Korea and across Europe.
"Notably, the war in Iran does not appear to have had an impact on the KFC brand," with Middle East markets reporting 11% system sales growth in the first quarter, Senatore wrote.
Although the UK is a highly competitive market, the stores in the region continued posting a strong performance, with 7% comps in the first quarter, the analyst said. "The brand is leaning into growth categories, including boneless chicken and sauces as well as beverages and bowls," she further wrote.
Senatore mentioned that KFC's topline is likely to be driven by:
- Brand buzzL: pickle puffer jacket
- Value
- Digital: with KFC UK having 1.7 million loyalty members)
- Occasions: As the company innovates to drive increased occasions, as "expanding beyond the bucket business increases KFC’s ability to compete in a broader set of dayparts like lunch/snacking/late night."
YUM Price Action: Shares of Yum! Brands had declined by 1.11% to $155.92 at the time of publication on Wednesday.
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