investing

The Best Stock in Kentucky: Yum Brands

We analyzed publicly traded companies based in the Bluegrass State to identify the best stock in Kentucky to buy now.

We scoured the nation to identify the best stock in every state. Yum Brands (symbol YUM) is the publicly traded company we picked in Kentucky. The company headquarters is located in Louisville.

A word of caution: Since we selected a single stock from each state (plus one from D.C), and choices in some states are sparse, a few of our picks are best suited to investors comfortable with a higher degree of risk. This is not necessarily one of our 51 favorite stocks in the entire U.S., in other words.

Yum Brands by the Numbers

  • Headquarters: Louisville
  • Share price: $74.54
  • Market value: $26.0 billion
  • Price-earnings ratio: 27

(Prices and data are as of June 22, 2017)

Even if you haven’t heard of Yum Brands, chances are you’ve eaten at one of its more than 43,000 restaurants—mostly KFC, Pizza Hut and Taco Bell locations—which operate in more than 135 countries and territories.

Last November, the quick-service restaurant giant completed plans to spin off its China division, accounting for 17% of the company’s stores. The division has since operated as a franchisee, paying royalties to Yum for sales in China. The move marked the beginning of a transformation in which Yum intends to shift 98% of its stores to a franchisee ownership structure by 2019, up from 77% last year and 93% post spin-off. While the spin-off initially lowered the company’s revenues, the plan should result in higher profit margins and more-stable income, says Value Line analyst Robert Greene.

Yum expects to cut annual spending on plant and equipment to $100 million in 2019, down from $500 million in 2015, and reduce operating expenses by a cumulative $300 million over the same period. These cost savings combined with the company’s commitment to reducing its share count via buybacks will drive 13% annual growth in earnings per share through 2018, says CFRA analyst Tuna Amobi. The dividend yield, though modest at 1.6%, should keep pace; Yum has hiked its quarterly payout by double-digit percentages every year since 2004. Amobi sees Yum’s stock hitting $78 over the next 12 months and rates it a “strong buy.”

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