Credit Suisse: Here's How Yum! Is Doing In China

Shares of Yum! Brands gained nearly 3 percent by early Friday afternoon after the company announced it recorded a 5 percent same-store sale gain in its China segment for the month of October.

Investors and traders appeared to be encouraged by the metric, as evidence by the stock's strong outperformance relative to the broader indices – such as the S&P 500, which was lower by 0.35 percent.

However, Jason West of Credit Suisse cautioned investors not to be "overly buoyed by the magnitude of the beat," as he was forecasting a flat to 1 percent same-store sales gain.

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West's Take

West noted Yum's China sales have been "extremely volatile," and the company did not provide the year-ago monthly compares. In addition, management cautioned in the release that its same-store sales outlook remain "difficult to forecast in China" and "overlaps become more difficult for the balance of the year."

West broke down China's sales metrics, stating that KFC saw a 10 percent same-store sales gain while Pizza Hut posted a negative 9 percent comp for the month.

Concluding Thoughts

Finally, the analyst pointed out that Yum's management maintained its fourth-quarter China same-store sales guidance of flat to positive 4 percent, which implies a "wide potential range" for November and December.

Shares remain Neutral rated with an unchanged $75 price target based on an approximate 12x 2016E EV/EBITDA.

Image Credit: By User:TianyinLee (Own work) [CC BY-SA 3.0], via Wikimedia Commons