Why Yum! Brands, Inc. Shares Popped 3%

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Yum! Brands, (NYSE: YUM  ) climbed 3% this morning after Deutsche Bank upgraded the fast-food giant from hold to buy.

So what: Along with the upgrade, analyst Jason West boosted his price target to $90 (from $72), representing about 20% worth of upside to yesterday's close. While value investors might be turned off by Yum!'s share-price surge over the past month, West believes there's plenty of room to run given the company's strong prospects for above-average growth and multiple expansion in 2014.

Now what: Deutsche raised its 2014 EPS estimate for Yum! from $3.49 to $3.59 and expects EPS of $4.19 in 2015. "YUM's story is also supported by steady franchise royalty income from the U.S. [and Yum! Restaurants International] segments, which are ~90% franchised and generate ~2/3 of YUM's profits," Deutsche notes. "Additionally, the YUM portfolio offers significant free cash flow (even in down years)." Of course, with Yum! shares surging to a new 52-week high today and trading at a 30-plus P/E, it's hard to believe those strengths aren't already baked into the valuation. 

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Related Tickers

9/28/2016 4:04 PM
YUM $90.22 Up +0.36 +0.40%
Yum! Brands CAPS Rating: ****