Yum! Brands, Inc. (YUM), McDonald’s Corporation (MCD): You Ate the Bones…

Page 1 of 2

Yum! Brands, Inc. (NYSE:YUM)If you bought Yum! Brands, Inc. (NYSE:YUM) before the close on Wednesday, you might be panicking – like the diners who think they swallowed chicken bones in KFC’s new commercials.

Sure, Yum! Brands, Inc. (NYSE:YUM) has had a lot of support from investors and analysts lately. We’ve seen increasing earnings outlooks, despite economic slowdown and bad publicity in China. Sure enough, things got worse, just like Yum! predicted.

Earnings came in at $0.56 per share for the fast-food holdings company, 16% lower from the second quarter last year. And while these numbers aren’t as dismal as the ones from the first quarter, they still aren’t great. Nothing changes the fact that Yum! Brands, Inc. (NYSE:YUM) is still relying heavily on China as their main source of growth and there are better hedged and cheaper companies out there worth looking into.

I’m not saying China is going to collapse. But if there is in fact an economic slowdown, or we have another avian flu scare, Yum! Brands, Inc. (NYSE:YUM) will find itself between a rock and a hard place once again.

Reliance on China

China, the second largest economy in the world, is currently going a lifestyle change that is becoming more and more ‘Western’ every day. The country’s fast food industry is expected to grow 14% in 2013 alone.

Other companies, including McDonald’s Corporation (NYSE:MCD) and Starbucks, are expanding rapidly there as well. A large portion of Yum!’s operations are coming from China, as well as most of their growth. Its staple in the country is KFC, which has proven to be a huge hit in the area for some reason. And while the company has solid growth in other Asian countries, Yum! seems to really be banking on a huge expansion in China.

There’s always next year

Yum! Brands, Inc. (NYSE:YUM) vows that earnings will pickup in 2014. And sure, it might. But does it make the company investment worthy? Not compared to other companies with the same Asian expansion strategy.

The current price to earnings growth ratio for Yum! Brands is 2.23. Compared to other companies with a strong presence in China, this ratio is very high.

Take McDonald’s Corporation (NYSE:MCD), the largest fast food corporation in China. Its price to earnings growth ratio is only 1.87, which prices the firm’s growth much cheaper than Yum! Brands. McDonald’s Corporation (NYSE:MCD) is also expanding their McCafe outlets 45% this year alone, in addition to its better-known McDonald’s operations. And while also reliant on China, McDonald’s has a much different geographical layout.

Like Yum! Brands, McDonald’s has all but saturated America with fast food chains. The difference is that it’s not only looking to Asia for increased revenue and growth. 40% of McDonald’s Corporation (NYSE:MCD) sales come from Europe, whereas 22% comes from the AMEA region. Compared to Yum!’s sales in the European region, which are nearly nonexistent, McDonald’s is much better off in the event that European economics take a turn for the better or Chinese growth happens to slow down

Yum! Brands, Inc. (NYSE:YUM) may have slightly more upside that McDonald’s Corporation (NYSE:MCD), but it also may have more downside.

Which one is priced better?

There’s been a lot of hype about Yum!’s growth, whereas the king of fast food, McDonald’s, has been comparatively ignored.

Yum! Brands currently boasts a price to earnings ratio of 23 for the trailing twelve months, versus 18.5 for McDonald’s. It’s worth nothing that both of these are much lower than the competitor average (in the mid 20s), but McDonald’s Corporation (NYSE:MCD) still wins out significantly.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Best States To Practice Medicine

The 10 Best States to Have a Business

The 12 Most Expensive Apple (AAPL) Apps in the Market

The 10 Richest Billionaires in the World

10 Biggest Kickstarter Failures

The 10 Best Places to Work At

The Top 10 of Google Inc (GOOGL)’s Most Expensive Acquisitions

13 Best Cities to Visit in South America

10 Most Expensive Works of Art of All Time

The 10 Richest Banks in the World

The 10 Best-Paying Jobs in America (2014)

7 Most Expensive Foods in the World

The World’s Top 10 Earning Authors

Five Wicked and Very Expensive Items (and Other “Stuff”) Sold on eBay

10 Biggest Celebrity Bankruptcies

The Top 10 Highest Paid CEOs in 2014

The 10 Most Expensive Real Estate Cities in America

10 Most Expensive States To Live In America

The 10 Best Airlines in the World

The 10 Best-Selling Cars in 2014

The 10 Best Industries to Invest In

The 10 Most Expensive States to Own a Car In

Top 10 Business Schools in US: 2014 Rankings

Top 20 Female Billionaires in 2014

6 Movies That You Should Watch to Better Understand The Cold War

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top 6 Tax Scams and How to Protect Yourself

Top Businesses to Invest In

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!