We recently compiled a list of the 9 Best Pizza Stocks to Buy Now. In this article, we are going to take a look at where Yum! Brands, Inc. (NYSE:YUM) stands against the other pizza stocks.
How’s the Pizza Market Doing?
Originating from Italy hundreds of years ago, and spreading across the globe like wildfire ever since, pizza has always been the consumers’ go-to food option, and hence, its market is growing to date. As such, as reported in one of our articles on best pizza stocks to buy, the pizza market is set to experience a CAGR of 4.45% during the period 2024-2032, growing from $148.6 billion in 2023 to $222.5 billion by 2032. Similarly, the frozen pizza segment is also expected to increase during the period 2023-2028, gathering a market size of $5.96 billion during the period, showcasing a CAGR of 4.96%.
The popularity of pizza can be judged from the statistics showing that there are 245,000 pizza restaurants in the world, and around 77,000 restaurants within the U.S. The U.S. itself experienced record-high pizza sales of $46.9 billion in 2022, thanks to over 7,000 units opening up in the eight years up till 2022. This reinforces the fact that the largest pizza chains in the world are based in the U.S. Pizza Hut, one of the biggest pizza brands in the world, is the oldest one, which was founded back in 1958 in Kansas, USA.
What’s Cooking in the Industry?
Within the frozen pizza segment, meat toppings dominate the market as it has a share of 56% in sales, while vegetable toppings have a share of 26%. In contrast, cheese toppings are also competing nicely, as it has a 14% share, as reported by media.market.us. DiGiorno, Red Baron, and Totino’s Party Pizza are the top frozen pizza brands with the greatest brand awareness.
The recent trends in the pizza market include rising demand for vegan pizzas (frozen or otherwise); this evolving market of pizza has got is on a roll, as new demands keep popping up for cheese substitutes, all sorts of pepperoni, Mexican style meats like Birria and chorizo, and new topping varieties
What’s new in the industry is the rapid acceleration of technology use in the context of operators, as a survey shows that 748 pizza makers in the U.S. find online ordering the new go-to way of consuming pizzas and that 78.21% of the producers are investing in a great deal to up their brand presence across the internet. The optimism is on the high side as well amongst the pizza makers as most believe in sales growth in the next twelve months.
Thus, certainly, the pizza market is one to grow indefinitely (or at least it should), and hence, to capitalize on this growth, one must know the best pizza stock to buy. So, let’s move on to our list of 9 Best Pizza Stocks to Buy Now.
Methodology
To curate our list of 9 Best Pizza Stocks to Buy Now, we gathered a list of all companies with a significant presence in the pizza industry and related industries of cheese and flour. We then further narrowed them down on the basis of various metrics like institutional ownership, the number of analysts watching the stock, and the overall financial health of respective stocks. We ranked the finest remaining companies by the number of hedge funds that had stake in them as of Q2, 2024.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A chef in a kitchen preparing a fast food meal of chicken, pizza and burgers.
Yum! Brands, Inc. (NYSE:YUM)
Number of Hedge Fund Holders: 36
Upside Potential: 7.07%
Yum! Brands, Inc. (NYSE:YUM) is the parent company of Pizza Hut, the second largest pizza chain in the US.
The stock has the eyes of institutional investors, as it has 88% institutional ownership as of Q2 2024, showcasing the stock’s popularity with Wall Street. Furthermore, based on an analyst count of 22, the stock’s upside comes out to be 7.07%. The analysts further expect a growth in the company’s EPS, as compared to 2023 levels; they expect it to increase from $5.2 per share to $5.65 per share in 2024, and $6.3 per share in 2025 – growth of 8.65% and 21.2% in the respective forecasted years.
Moreover, 24 analysts predict the company’s revenue will grow to $7.62 billion and $8.2 billion in 2024 and 2025, respectively, from recorded revenue of $7.1 billion in the full year 2023. That’s quite a sweet forecast for the stock; however, now we will look into why the stock’s going in a positive direction in the eyes of analysts.
First, let’s have a look at the company’s numbers for Q2 2024: Yum! Brands saw quarterly profitability growth as their system sales grew by 3% and core operating profit grew by 10%, thanks to increased market share grabbed by Taco Bell US, and decent unit growth observed at KFC International. The improved profitability was also a result of the company’s cost-reduction strategies working fine, resulting in a G&A expenses reduction of 9% year-over-year.
On the other hand, the Pizza Hut segment, which has a 14% share in the company’s operating profit, showed a mixed performance during the quarter. Although the system sales stayed constant and international same-store sales dropped by 4%, there’s an uplifting momentum in the U.S., Thailand, and Hong Kong. The company is further expanding its customer engagement of Pizza Hut Segment, as it has now stepped into the burger industry with the new Cheeseburger Melt, as announced in May 2024.
The company’s deployment of an AI-enabled restaurant management system, Dragontail is expected to be rolled out in all of the US systems of Pizza Hut, which the company believes will result in an increase of 7% in customer satisfaction. And to spice things up for pizza lovers, Pizza Hut has announced extensive development of its menu in June 2024, disclosing new upcoming toppings such as Spicy Marinara Sauce, Pesto Sauce Swirl, Chicken Sausage, Fresh Diced Garlic, Grape Tomatoes, Caramelized Onions, Fire-Roasted Peppers and Crispy Cupped Pepperoni.
The growth of the company in the coming time is inevitable, as the financial standing as of Q2 2024 end is going strong, enabling the company to open up 894 units in the quarter alone, which is the highest number of openings in any 2nd quarter of the company’s history, translating to a 5% YoY unit growth. The company’s strategic investments will continue to drive its growth in the coming time as they are investing in technology to improve food quality and customer satisfaction. Furthermore, the 10,000 units milestone is set to be achieved by the company relating to its KFC segment.
The growth prospects of the Yum! Brands will further be bolstered by the company’s acquisition of 216 KFC restaurants in the UK and Ireland, which it is optimizing as of now, and will soon be translating into greater revenue and profitability. And let’s not forget that the Middle East conflict has had its share of impact on the company’s profitability in the last two quarters, and it expects to recover from it in the rest of the year and beyond, as it plans to reopen many of its units in the region that are temporarily closed as of now.
With cash and cash equivalents standing at $520 million, up by 19% from the same quarter of 2023, with the expansion plans set out for the shorter run, and with the adoption of high-end AI technology, the company’s upside of roughly 7% seems to be quite on the touching distance, especially given the fact that recovery from Middle eastern conflict is set to happen.
Overall YUM ranks 5th on our list of the best pizza stocks to buy. While we acknowledge the potential of YUM as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than YUM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.