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Here's Why Yum China (YUMC) Stock is a Solid Bet Right Now

Yum China Holdings, Inc. YUMC continues to bank on menu innovation, digital enhancement and expansion to drive growth. Moreover, strong balance sheet will also help the company navigate through the coronavirus pandemic. In the past three months, the company’s shares have gained 17.1%, compared with the industry’s rally of 19%.

Key Catalysts

Yum China is focused on continual menu innovation to drive top-line growth. KFC’s extraordinary performance can be attributable to greater sales of menu offerings including crayfish burger, stuffed chicken wing and spicy chicken burger.

The company holds a leadership position in the Chinese restaurant space when it comes to delivery, mobile order and pay, and loyalty membership. The company is increasingly shifting toward digital and content marketing to expand customer base. It has adopted a high-grade delivery strategy that covers collaborating with aggregators to source traffic and fulfills orders by the company’s KFC riders. This is expected to help the company in driving volume and leveraging the extensive network to control quality simultaneously. In first-quarter 2020, delivery contributed 35% to sales, up 16 percentage points from the prior-year period. In first-quarter 2020, digital orders accounted for more than 84% of KFC sales and 65% at Pizza Hut.


Yum China is focused on relentless unit growth of restaurants in order to drive incremental sales. In 2018, the company opened 819 restaurants and re-modeled 931 stores. This exceeds the company’s prior target of opening 600-650 stores in 2018. In 2019, the company opened 1,006 stores, bringing total store count to 9,200 in more than 1,300 cities. Notably, the company remodeled 972 stores in 2019. In first-quarter 2020, the company opened 179 new restaurants and remodeled 31. Despite the coronavirus crisis, the company anticipates opening 800-850 stores in 2020.

Yum China’s balance sheet remained strong, with cash and cash equivalents amounting to $1,048 million as of Mar 31, 2020 compared with $1,046 million on Dec 31, 2019. The company has short-term investments of $490 million. More importantly, the company had no material debt at the end of first quarter.

Zacks Rank & Other Key Picks

Yum China currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some other top-ranked stocks in the same space include Jack in the Box Inc. JACK, Wingstop Inc. WING and Domino's Pizza, Inc. DPZ. Jack in the Box and Wingstop sport a Zacks Rank #1, while Domino's carries a Zacks Rank #2.

Earnings in 2021 for Jack in the Box are expected to rise 22.9%.

Wingstop has a three-five year earnings per share growth rate of 11%.

Domino's has a trailing four-quarter positive earnings surprise of 12.7%, on average.

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