Yum! Brands, Inc. (YUM) Is Looking Tasty

Saturated, and I’m not taking about fat

As noted before, the fast-food industry is highly saturated and the two titans in the industry are Burger King Holdings, Inc. (NYSE:BKC) and McDonald’s Corporation (NYSE:MCD).

Burger King offers a light dividend return of 1.2%. It has shown some progressive sales numbers due to their special menus and combo deals, and has plans to expand its current home delivery service. Current valuations of Burger King have the stock trading over 21 times forward EPS, which makes it a more expensive buy among its peers. The stock at these levels is not as attractive as Yum!’s, so my stance on Burger King is to hold the position and not accumulate any shares at this point.

McDonald’s is a great buy for a portfolio, especially now, after posting increased sales of 2.6%. McDonald’s is a household name that isn’t going anywhere for generations, and a long position of this stock should be accumulated on any significant pull back on the stock.

Its last quarter’s earnings met consensus revenue estimates, coming in at $7.083 billion. Its earnings per share came in $0.02 below average analyst estimates of $1.40 per share. That being said, any pullbacks in McDonald’s shares are an opportunity to buy, and I recommending accumulating shares at this point.

Conclusion

Whether it be China’s promising outlook or its attractive valuation against U.S. competitors, Yum! Brands should be a buy for your portfolio. With current shares trading at the $70.00 level, forward estimates show this stock has room to grow, and I believe there is over $30.00 in value right now. My recommendation is to purchase Yum! Brands.

Michael Mandala has no position in any stocks mentioned. The Motley Fool recommends Burger King Worldwide (NYSE:BKW) and McDonald’s. The Motley Fool owns shares of McDonald’s. Michael is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.