Yum Brands up slightly in premarket as revised outlook may not be as bad as expected

MarketsAssociated Press

Yum Brands' stock is edging higher in premarket trading Wednesday, as the restaurant operator's lowered full-year guidance may not be as bad as some investors expected.

On Tuesday the owner of KFC, Pizza Hut and Taco Bell said it anticipates that full-year earnings per share will rise by between 6 percent and 10 percent from a year ago. That was down from its previous forecast for growth of at least 20 percent.

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The Louisville, Kentucky, company said it revised its forecast because of the latest food scare in China that hurt sales at its flagship KFC chain. Yum is trying to recover from a TV report this summer that showed one of its suppliers using expired meat. The company noted it was hurt by the controversy even though it got a limited number of products from the supplier in question, a unit of OSI Group.

Jefferies' Andy Barish said in a client note that it's likely that many people expected Yum to change its outlook to flat, instead of the new range for 6 percent to 10 percent growth. Barish said that trends seem to be improving in China, but it's unclear how long it will be for Yum to turn things around.

The analyst reaffirmed a "Hold" rating and $71 price target.

Paul Westra of Stifel Nicolaus said that while there is still some uncertainty in China, "Yum China remains one of the best retail businesses on the globe." The analyst said that the China-led volatility could boost the odds of a Yum China subsidiary listing on the Hong Kong exchange or debt recapitalization.

Westra maintained a "Buy" rating and reduced his price target for Yum to $105 from $110.

Shares of Yum Brands Inc. gained 92 cents, or 1.3 percent, to $70.65 in premarket trading about an hour and a half before the market open.