YUM! BRANDS, INC. (YUM): what the price requires
At today's price, YUM! BRANDS, INC. (YUM) is priced for +8.2% growth. boothcheck doesn't publish a fair value or a price target; it shows what the price assumes, so you can judge whether that bar is too high.
Generated: 2026-07-13 · Source: https://boothcheck.com/report/YUM
Headline
| Field | Value |
|---|---|
| Ticker | YUM |
| Company | YUM! BRANDS, INC. |
| Current price | $161.89/sh |
| Composition | U.S. - Company sales 24% / U.S. - Franchise revenues 17% / U.S. - Property revenues 1% / U.S. - Franchise contributions for advertising and other services 13% / China - Franchise revenues 4% / Other - Company sales 12% / Other - Franchise revenues 20% / Other - Property revenues 1% / Other - Franchise contributions for advertising and other services 9% |
What The Price Requires (Inversion)
The assumption today's price embeds, recovered by inverting the valuation.
| Field | Value |
|---|---|
| Inversion basis | whole-company |
| Operating margin needed | 17.7% |
| Operating margin today | 32.0% |
| Margin compression implied | -14.3pp |
| Implied growth | 8.2% |
| Multiple paid | 20x operating income |
The operating-margin requirement is derived from the framework's value band at year 12, a separately labeled basis from the headline growth/duration solve.
Solve inputs: computed at a 8.1% cost of capital with 4% terminal growth over a 5-year stage; each 1pp of cost of capital moves the implied operating-profit growth ~7.3pp.
Reconcile: at the x-ray's 9.3% required return this reads ~16.6%/yr; the models below use their own rates.
How unusual the bet is: within-range (limited comparison data)
| Reference | Value |
|---|---|
| vs own history | +0.32σ |
| implied end-window share | 0% |
Valuation X-Ray
The price is justified by relative-multiple; earnings-power land below the price.
How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.
| Family | Median price/FV | Models | Reads |
|---|---|---|---|
| Asset | — | 0 | — |
| Earnings | 2.90x | 3 | expensive |
| Relative | 0.89x | 2 | justifies |
| Growth | — | 0 | — |
Families that justify the price: Relative Families that call it expensive: Earnings
The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 8.9%); the inversion above states its own rate.
Per-Model Detail (n=5)
| Model | Family | FV | Price/FV | Applicable | Methodology |
|---|---|---|---|---|---|
| DCF Perpetual Growth | Growth | $148.82 | 1.09x | no | FCF base $1.7B, growth 10% (input: historical growth), terminal g 4.0%, WACC 8.9%, 6yr projection |
| DCF Exit Multiple | Growth | $185.10 | 0.87x | no | Exit EV/EBITDA: 14.4x / 16.4x / 18.4x (bear / base = today's held flat / bull), 6yr |
| Relative Valuation | Relative | $185.12 | 0.87x | yes | P/E 28x (sector median), scenarios: 23.2x / 28.0x / 32.8x (bear / base = sector held flat / bull), EV/EBITDA 18x |
| Simple DDM | Growth | — | — | no | — |
| Two-Stage DDM | Growth | — | — | no | — |
| Simple Excess Return | Asset | — | — | no | — |
| Two-Stage Excess Return | Asset | — | — | no | — |
| Discounted Future Market Cap | Growth | $149.93 | 1.08x | no | Rev $8.5B, growth 10% (input: historical growth; tapered), Terminal P/S: 4.4x / 5.3x / 6.2x (bear / base = today's held flat / bull, cap 8x) |
| Peter Lynch Fair Value | Relative | $168.58 | 0.96x | no | EPS $6.20, growth 27% (input: historical EPS growth), PEG=0.96 (Undervalued) |
| Margin Trajectory | Growth | — | — | no | — |
| Earnings Power Value | Earnings | $74.52 | 2.17x | no | Normalized EBIT (5y avg op income, one-time charges added back) $2.34B × (1−16%) / WACC 8.9% → EPV (no growth) |
| Residual Income | Asset | — | — | no | — |
| Graham Number | Asset | — | — | no | — |
| EV/EBITDA Relative | Relative | $178.44 | 0.91x | yes | EBITDA $2.89B × sector EV/EBITDA 18.0x |
| FCF Yield | Earnings | $55.75 | 2.90x | yes | FCF $1647.0M / Kₑ 9.3% — zero-growth perpetuity |
| SBC-Adj FCF Yield | Earnings | $52.92 | 3.06x | yes | SBC-adj FCF $1.57B (FCF $1.65B − SBC $0.07B) capitalized at Kₑ |
| Ben Graham Formula | Earnings | $200.05 | 0.81x | yes | EPS $6.20 × (8.5 + 2×15.0%) × (4.4 / 5.3%) |
| ROIC-Justified P/B | Asset | — | — | no | — |
| P/Sales Sector | Relative | $136.87 | 1.18x | no | Revenue $8.49B × sector P/S 4.5x |
| PEG Fair Value | Relative | $232.50 | 0.70x | no | EPS $6.20 × (PEG 1.5 × growth 25.0% (input: historical EPS growth)) → PE 37.5x |
| Earnings Yield | Earnings | $67.03 | 2.42x | no | EPS $6.20 / required return 9.3% (Rf 4.3% + ERP 5.0%) |
| Funds From Operations Multiple | Relative | — | — | no | — |
| Clinical Phase NPV | Growth | — | — | no | — |
| Merton | Asset | — | — | no | — |
| V5 Mechanical | — | — | — | no | — |
Solvency
| Field | Value |
|---|---|
| Net debt | $2.9b |
| Net debt / NOPAT (after-tax) | 1.42x |
| Net debt / operating income (pre-tax) | 1.19x |
| Share count CAGR (buyback) | -1.3% |
| Burning cash | no |
Interest expense is not separately reported in the latest filings, so interest coverage cannot be computed.
Bullet Takeaways
- Yum! Brands is a franchise royalty machine spanning KFC, Taco Bell, Pizza Hut, and Habit Burger, where most revenue is fees on someone else's restaurants, and in 2025 the model produced a 31.5% operating margin with system sales growing 5% on 3% unit and 3% same-store-sales growth.
- The defining tension is brand divergence: Taco Bell same-store sales rose 7% and KFC grew core operating profit 10% while opening nearly 3,000 units, but Pizza Hut same-store sales fell 1%, dropping 3% in the U.S., and management is reviewing options for that brand this year.
- What to watch is capital return and the Pizza Hut decision: the board raised the dividend 6% to $0.75 a share, digital sales surpassed $11 billion and reached almost 60% of the mix, and the strategic review of Pizza Hut is set to conclude in 2026.
Bull Case
The clearest way to read Yum is through what it returns and how reliably it can do so, because the franchise model is built to convert growth into cash for shareholders. The board raised the quarterly dividend 6% to $0.75 a share, and the share count drifts lower each year under buybacks. That steady capital return rests on an unusually clean cash engine: Yum collects royalties and franchise fees on a vast system of restaurants it does not own or operate, which is why operating margin sits above 31% and why the company can grow units without putting much of its own capital into buildings. The 10-K shows the leverage of this model, with consolidated operating profit of about $2,574 million against a relatively modest interest expense of $501 million, leaving ample cash for the dividend and repurchases.
The two flagship brands are doing the heavy lifting and doing it well. Taco Bell same-store sales rose 7% in the fourth quarter, and KFC delivered 10% core operating-profit growth on 6% system-sales growth while opening nearly 3,000 units in 2025. Unit growth is the compounding mechanism for a royalty business: every new restaurant a franchisee builds adds a permanent stream of fees at almost no incremental cost to Yum. The 10-K frames the goal as "driving profitable sales growth" using the scale and data of the whole system, and the breadth of the development, hundreds of new Taco Bells and Pizza Huts and thousands of KFCs, shows the franchisees are still willing to invest behind the brands.
Digital is the modern moat layer. Digital sales surpassed $11 billion in 2025, growing 25% year over year and lifting the digital mix to almost 60% of system sales. That matters beyond convenience: a digital order captures customer data, supports loyalty programs, and improves average ticket and frequency, and at Yum's scale the investment in technology is spread across tens of thousands of restaurants. A globally diversified franchisor with two strong growth brands, a 31% margin, rising digital penetration, and a growing dividend is a high-quality compounder, and the relative-multiple lens supports the price even as the earnings-power lens calls it full.
Bear Case
The structural truth a Yum holder should sit with is that one of its four brands is genuinely struggling, and the strength of the others is partly masking it. Pizza Hut same-store sales fell 1% in the fourth quarter, with the U.S. down 3%, and management has launched a review of strategic options for the brand it intends to complete this year. A company reviewing options for a major brand is acknowledging that the brand is underperforming and may not be fixable within the current structure. Pizza Hut competes in a U.S. pizza market crowded with aggressive value players, and a declining brand inside a portfolio priced for growth is a drag the multiple does not fully reflect.
The franchise model's elegance is also its dependency. Yum does not control its own restaurants; it depends on thousands of franchisees to build units, fund remodels, and execute the brand strategy. The 10-K is direct about the risk, warning that the company "may be unable to successfully implement strategies that we believe are necessary for growth if our Concepts' franchisees do not participate," and that growth requires "financial investment by such franchisees." When consumer spending softens or restaurant-level margins compress under labor and food-cost inflation, franchisees pull back on the new-unit development and remodeling that drive Yum's royalty growth. A royalty stream is only as healthy as the operators paying it, and franchisee financial health is a variable Yum influences but does not own.
The price assumes the strong brands keep pulling the weak one along. At about 19 times operating income, the inversion implies roughly 6.8% annual operating-profit growth sustained for five years, a pace within Yum's recent record but one that puts it in the upper half of its peer multiple range. The earnings-power lens calls the price expensive; only the relative-multiple lens, which benchmarks against premium restaurant peers, justifies it. The bear case is that the valuation already credits the Taco Bell and KFC momentum and gives little weight to the Pizza Hut deterioration or to a broad consumer slowdown that would hit unit development across the system. If franchisee appetite cools or the Pizza Hut review ends in a costly resolution, the premium has room to compress.
Valuation
At the current price the market pays about 19 times company-wide operating income, which inverts to roughly 6.8% annual operating-profit growth held for five years. That near-term pace is within what Yum has recently delivered, so the demanding part is duration rather than rate, and the read is labeled within range, broadly consistent with plausible growth, while noting the multiple sits in the upper half of the peer group. The price is paying for a steady mid-single-digit compounder to keep compounding, which the unit-growth-plus-same-store-sales formula has historically supported.
The valuation families give a two-sided read. The earnings-power lens calls the price expensive, while the relative-multiple lens, which benchmarks Yum against high-quality restaurant peers, supports it. That split is the heart of the valuation question: on its own absolute earnings the stock looks full, but against the premium multiples the market awards franchise compounders it looks reasonable. The reconciliation is the quality of the cash flows, an asset-light, high-margin royalty stream that the market is generally willing to pay up for, which is why the relative lens reaches the price the earnings lens does not.
Solvency is comfortable and typical for the model. Net debt of about $2.9 billion is roughly 1.1 times trailing operating income, modest leverage for an asset-light franchisor whose cash flows are stable and recurring, and the company funds its dividend and buyback from that cash generation. The downside here is not financial distress; it is multiple compression if growth slows, if the Pizza Hut review ends badly, or if a consumer pullback curbs franchisee unit development. The price embeds the strong-brand momentum persisting and the weak brand not becoming a larger drag.
Catalysts
The fourth-quarter 2025 results, reported in early February 2026, showed double-digit profit growth led by the flagship brands. System sales grew 5% on 3% unit growth and 3% same-store-sales growth, Taco Bell same-store sales jumped 7%, and KFC posted 10% core operating-profit growth, while Yum reported fourth-quarter net income of $535 million and GAAP earnings of $1.91 per share. The development pace was robust, with KFC opening nearly 3,000 units in 2025 and Taco Bell and Pizza Hut each adding hundreds of gross new outlets.
The Pizza Hut review is the most consequential pending catalyst. Same-store sales there fell 1% in the quarter, down 3% in the U.S., and management said the review of strategic options is proceeding as planned with an intent to complete it this year. A resolution, whether a turnaround plan, a structural change, or a divestiture, would remove an overhang and clarify the portfolio's growth profile.
Capital return and digital momentum round out the picture. The board raised the dividend 6% to $0.75 a share, and digital sales surpassed $11 billion, up 25%, reaching almost 60% of the system mix. The events most likely to move the thesis from here are the same-store-sales prints at Taco Bell and KFC, the outcome of the Pizza Hut review, the pace of net new unit development as a read on franchisee health, and any sign of a broader consumer slowdown in the quick-service category.
Peer Cohorts (Per Segment, With Filing Citations)
KFC Division / Taco Bell Division +2 more (reported)
- MCD (McDONALD’S CORPORATION)
- (no filing in the citation store)
- SBUX (Starbucks Corporation)
- (no filing in the citation store)
- CMG (CHIPOTLE MEXICAN GRILL, INC.)
- (no filing in the citation store)
- QSR (RESTAURANT BRANDS INTERNATIONAL INC.)
- (no filing in the citation store)
Methodology Note
- Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
- Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
- Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
- Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.
Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.
Sources
Yum Brands Q4 2025 results, February 2026 · Yum Brands Q4 2025 earnings call, February 2026