Yum! Brands, Inc. (YUM) a Good Stock to Buy?

Burger King Worldwide Inc (NYSE:BKW) and The Wendy’s Co (NASDAQ:WEN) have had fairly low earnings numbers on a trailing basis compared to where their stocks currently trade, but analysts are optimistic in terms of their future EPS as well. In each of these cases the most recent data shows that 14% of the float is held short, so many market players are apparently skeptical that these restaurants will grow enough to justify their current valuations. Wendy’s has seen stagnant revenue and somewhat lower net income, and with the stock valued at 28 times forward earnings estimates following a rally this year we would avoid it. Burger King has also been converting to more of a franchise model, fairly successfully: revenue has plunged, but costs have been slashed by even more generating a rise in earnings. Still, even with analysts expecting high EPS growth to continue the forward P/E is 22.

As such it doesn’t seem like a good idea to be buying Burger King at these levels either, and in fact it appears that Yum and the rest of its peers aren’t very good values right now. It is possible that Yum could recover from its current troubles in China, but even if it performs in line with sell-side expectations- which in many cases are often too optimistic- the forward valuation would still incorporate quite a bit of future growth and so the current price does not look attractive.

Disclosure: I own no shares of any stocks mentioned in this article.