5. Yum China Holdings, Inc. (NYSE:YUMC)
Hedge Funds Holding Stakes: 24
Stock Upside Potential: 41.11%
Yum China Holdings, Inc. (NYSE:YUMC) is a premier restaurant chain that owns, operates, and franchises restaurants in China. It generates revenues through direct restaurant operations, licensing fees, and additional services associated with its brands.
Yum China Holdings, Inc. (NYSE:YUMC) has been firing on all cylinders, going by the record revenue in Q2 2024 due to same-store transaction growth and new unit growth. Revenues in the quarter were up by 1% to a record high of $2.68 billion, as same-store sales reached 96% of last year’s levels. Diluted earnings per share were up 17% to $0.55, a record level.
The record revenues and earnings can be attributed to, among other things, a sharp focus on value for money and innovative products that continue to drive robust same-store transaction growth. Yum China Holdings, Inc. (NYSE:YUMC) has taken proactive steps to improve operational efficiency, stabilize restaurant margins, and generate more shareholder value.
Yum China Holdings, Inc. (NYSE:YUMC) is also investing significantly towards innovation, such as launching new menu items and marketing initiatives, which continue to attract customers and boost sales. Another positive aspect was the seamless internal transition in the C-suite, with CFO Andy Yeung set to step down in September and current CIO Adrian Ding taking over as acting CFO.
While the average price-to-earnings multiple for consumer cyclical stocks is 23, Yum China Holdings, Inc. (NYSE:YUMC) is currently trading at a forward P/E of 15. What this means is that the stock might be undervalued. Additionally, as one of the best Chinese stocks to buy, the stock rewards investors with a dividend yield of 1.91% for generating some passive income on the side.
Yum China Holdings, Inc. (NYSE:YUMC) remains a top pick for investors, as Wall Street analysts have rated the stock as a Buy. With an average price target of $48.26, this rating implies a significant 41.11% upside potential from the current levels, making it a promising investment opportunity. Insider Monkey database indicates that 24 hedge funds held stakes in the company as of the end of Q2 2024.
Baron Funds discussed the reasons behind Yum China Holdings, Inc. (NYSE:YUMC)’s decline in its Q4 2023 investor letter. Here’s what the firm mentioned:
“Yum China Holdings, Inc. (NYSE:YUMC) is the master franchisee for the YUM brands in China and operator of the KFC and Pizza Hut restaurant networks in that market. Shares detracted after the company reported a negative surprise on margins for the third quarter and hinted that increased competition and cost-consciousness among Chinese consumers could cause that margin compression to continue through the first quarter of 2024. Although in-year margins are volatile at Yum China, its pristine balance sheet, cumulative investments in technology, unmatched scale, and successful pivot to higher-ROI, smaller footprint stores in recent years should drive continued 8% to 10% store growth at attractive returns. Further, given its strong free-cash-flow generation and strong balance sheet, we believe the company is likely to offer capital returns to shareholders in excess of earnings over the next several years. We remain shareholders.”
