The company’s third-quarter performance inspired one analyst to upgrade his recommendation on the shares.
According to data compiled by S&P Global Market Intelligence, restaurant chain operator Yum China Holdings‘ (YUMC -4.18%) stock was a nearly double-digit gainer this week. The company’s shares rose by 9% in price across the period, due in no small part to news of encouraging quarterly results, and subsequent analyst price target increases — and even a recommendation upgrade.
Expansion program spurs top-line growth
Yum China’s positive momentum kicked into gear Monday morning, and never really let up. That morning it posted its third-quarter results, revealing that revenue rose by 5% year over year to $3.07 billion, while adjusted net income experienced a meatier improvement with a 19% rise to $297 million ($0.77 per share). Both figures comfortably topped the consensus analyst estimates.
Much of the improvement derived from Yum China’s aggressive expansion program. During the quarter, the company cut the ribbon on over 400 new restaurants in its system, and their revenue more than mitigated a 3% decline in same-store sales. All told, as of the end of September it had 15,861 restaurants under its wing.
The company didn’t hesitate to mention that it’s being aggressive in returning capital to investors as well. It boosted its level of share buybacks and stockholder dividends by almost threefold to $1.24 billion.
From neutral to bullish
On the back of these pleasing figures, several analysts tracking Yum stock became notably more bullish on the company’s prospects. Taking the lead in this was JPMorgan Chase, which upgraded its recommendation to overweight (buy, in other words) from the previous neutral. This was accompanied by a price target raise for the company’s Hong Kong-listed stock to 60 Hong Kong dollars ($7.72), up from HK$35.50 ($4.57).
According to reports, the bank’s analyst Kevin Yin said various sectors of the Chinese economy were consolidating, as a relatively sluggish economy knocks out smaller competitors. The relatively powerful Yum China should continue to benefit from the trend.
JPMorgan Chase is an advertising partner of Motley Fool Money. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool has a disclosure policy.
