On Friday, Deutsche Bank (ETR:DBKGn)'s analyst adjusted the stock price target for Yum China Holdings (NYSE:NYSE:YUMC) to $54.30, down from the previous $57.00, while reaffirming a Buy rating on the stock.
According to InvestingPro analysis, YUMC appears undervalued, with strong financial health metrics and a P/E ratio of 19.1x that looks attractive relative to growth prospects. Zhang's assessment suggests confidence in Yum China's profit margin trend throughout 2025, citing several factors that should contribute to the company's financial stability.
The analyst pointed to a recent menu price increase at KFC, which took effect in December 2024, as a positive move. Selected products saw a price hike of RMB0.5-2, resulting in a low-single-digit average price increase, which is expected to alleviate some of the challenges posed by ticket average and wage inflation.
The company's solid financial position, with more cash than debt on its balance sheet and an impressive 8-year streak of consistent dividend payments, supports its expansion strategy. Moreover, Yum China's strategy of opening new stores is anticipated to proceed smoothly, supported by high-quality franchise partners.
Zhang also highlighted the effective cost control measures implemented under the Mega RGM structure as a reason for maintaining the positive outlook. These measures are likely to continue contributing to the company's financial health.
Investors and analysts are looking forward to Yum China's upcoming analyst briefing on February 6, 2025, which will discuss the company's fourth-quarter and full-year 2024 results. The briefing is expected to offer insights into the sales same-store growth (SSSG) trends, especially in the context of promotional activities.
Updates on franchise and side-by-side store openings will also be on the agenda, including the expansion of KPRO, which provides healthier meal options like energy bowls and smoothies.
Moreover, the briefing is set to cover the potential for cost savings and will provide details on the full-year capital returns to shareholders, including the share repurchase amount of $360 million for the first half of 2025, as announced by the company.
InvestingPro data reveals the company's strong commitment to shareholder returns, with aggressive share buybacks and a current dividend yield of 1.48%. Discover more insights and 10+ additional ProTips about YUMC's financial performance in the comprehensive Pro Research Report.
In other recent news, China's shift towards a more accommodating monetary and fiscal policy has positively affected companies with significant ties to the country. This policy change is the first of its kind in about 14 years and involves a "moderately loose" monetary policy, stabilizing the property and stock markets, and stimulating domestic demand.
Companies such as Alibaba (NYSE:BABA), Baidu (NASDAQ:BIDU), PDD, JD (NASDAQ:JD).com, NetEase (NASDAQ:NTES), Trip.com, KE Holdings, and Bilibili (NASDAQ:BILI) have experienced substantial gains in the wake of this shift.
Yum China Holdings has also been in the spotlight recently, with JPMorgan upgrading the stock from Neutral to Overweight and raising the price target to $60.00 from the previous $35.50. This adjustment is based on factors such as Yum China's notable positive traffic growth for the past seven quarters, year-over-year margin improvement in the third quarter of 2024, and expectations for improved margins and a 6-7% stock buyback in 2025 and 2026.
Moreover, Yum China reported a robust performance in their third quarter earnings call. System sales grew by 4% year-over-year, with the company's core operating profit seeing an 18% increase, and diluted earnings per share (EPS) rising by 32%. Over 1,200 new stores were opened, and the company announced plans to return $4.5 billion to shareholders from 2024 to 2026.
These are just a few of the recent developments for companies with exposure to China.
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