It’s true, beyond doubt, that the average consumer has plenty of choices when it comes to fast food. Ultimately, it becomes a matter of personal preference—sometimes as measured by what a customer prefers that particular evening—in determining which comes out ahead. But Yum! Brands (NYSE:YUM) gained fractionally in Wednesday afternoon’s trading after it won a significant preference battle over a close competitor, Wendy’s (NASDAQ:WEN).
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Barclays, via analyst Jeff Bernstein, upgraded Yum from Equal Weight to Overweight and dropped Wendy’s from Overweight to Equal Weight. Basically, Bernstein looks for some trouble ahead in the restaurant sector, looking for it to fall into that “discretionary” category that’s been coming under fire lately in everything from toys to cruises.
But Yum has a little extra edge here since it’s a well-capitalized portfolio company that offers a whole string of restaurants under its banner. Meanwhile, Wendy’s just has Wendy’s, and that’s an inherently limiting proposition. Most everywhere that would have a Wendy’s already does, which means only per-unit sales can expand its offerings from here.
Yum! Brands Still Lags Another Competitor
Here’s the part that makes things a little extra fun and unclear: While Yum is indeed a broad-spanning portfolio operation, it’s still a laggard compared to one of its major competitors: McDonald’s (NYSE:MCD). Yum, in fact, has 16,000 more restaurants than McDonald’s does. Yet, even with that clear win, McDonald’s pulls in 70 times the revenue thanks to a massive difference in how much real estate it owns. While this doesn’t necessarily hurt Yum much—especially against Wendy’s—McDonald’s overall plan to own more real estate might give it the edge over both of them.
Is Yum a Good Stock to Buy?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on YUM stock based on nine Buys and nine Holds assigned in the past three months, as indicated by the graphic below. After a 2.65% increase in its share price over the past year, the average YUM price target of $139.13 per share implies 7.53% upside potential.
