Yum Brands' Q2 In Line With Expectations, But Barclays Sees Chinese Headwinds

With the China separation on track, Barclays’ Jeffrey A. Bernstein expects Yum! Brands, Inc. (NYSE: YUM) shares to outperform the market.

Bernstein maintains an Equal-Weight rating on the company, with a price target of $83.

China Separation On Track

The analyst mentioned that the company reported its 2Q16 results mostly in line with expectations, although the guidance was encouraging, with the operating profit growth guidance for 2016 being raised once again.

“China is off to a ‘good start’ for both brands in 3Q16,” Bernstein stated, while adding that beyond China, “the brand divisions delivered results below expectations led by ‘challenging industry conditions’ in the US.”

Related Link: JPMorgan Analysts Suggest Accumulating YUM! Shares In Mid-$80 Range

Bernstein noted that Yum was focused on returning cash to shareholders. The company reported new debt of $6.9 billion, in support of its plan to increase leverage to 5x, ahead of the China separation in October 2016.

Guidance

Yum raised its 2016 operating profit growth guidance from 12 percent to “at least 14 percent.”

Bernstein noted that China comps had been improving in 3Q16, and the three brand divisions were on track with the profit guidance, on average.

The analyst expects the company to provide its EPS guidance post separation.

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