YUM! BRANDS, INC. (YUM): what the price assumes

In the published model solve dated 2026-Q2, anchored at $153.86, YUM! BRANDS, INC. (YUM) is priced for +3.3% growth. boothcheck publishes no house fair value, target price, or buy/sell rating; individual model outputs and user-controlled scenarios are analytical inputs, not Boothcheck targets. Narrative composed 2026-06-28.

Generated: 2026-08-30 · Source: https://boothcheck.com/report/YUM

Headline

What The Price Assumes (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

The operating-margin figure is value-band context at year 12: derived from the framework's value band, a separate calculation — not part of the priced-in solve.

Solve inputs: computed at a 7.5% cost of capital with 4% terminal growth over a 5-year stage.

How unusual the bet is: n/a

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.

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 8.8%); the inversion above states its own rate.

Per-Model Detail (n=5)

Economic-Unit Decomposition (Sum Of The Parts)

The disclosed units share an operating capital structure; consolidated cash-flow lenses remain coherent and the unit split is explanatory.

No total common-equity value is stated. One or more material units lack a supported unit value. The displayed values are an indicative subtotal; consolidated debt and cash cannot be applied to a fraction of the company.

Solvency

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)
• FY2025 10-K: …on the Company's competitive advantages. The Company's guiding purpose, mission and values are discussed in a dedicated section on page 4 of this Form 10-K. GROWTH PILLARS The following growth pillars, M-C-D, build on historic strengths and articulate areas of further opportunity. Under our Strategy, the Company…
• FY2025 10-K: …31, 2001.* (i) First Amendment to the McDonald's Corporation Supplemental Profit Sharing and Savings Plan, effective January 1, 2002, incorporated herein by reference from Exhibit 10(c)(i) of Form 10-K (File No. 001-05231), for the year ended December 31, 2002.* (ii) Second Amendment to the McDonald's Corporation…
• SBUX (Starbucks Corporation)
• FY2025 10-K: …fourth quarter of fiscal 2025, and incremental revenue from the conversion of 113 licensed stores to company-operated stores ($131 million) following the acquisition of 23.5 Degrees Topco Limited. Partially offsetting this increase was a 1% decline in comparable store sales ($408 million), attributable to a 2%…
• FY2025 10-K: …segments: 1) North America, which is inclusive of the U.S. and Canada; 2) International, which is inclusive of China, Japan, Asia Pacific, Europe, Middle East, Africa, Latin America, and the Caribbean; and 3) Channel Development. North America and International operations sell coffee and other beverages,…
• CMG (CHIPOTLE MEXICAN GRILL, INC.)
• FY2025 10-K: …operating segment is comprised of all 11 operating segments located in the United States, which we have aggregated to a single operating segment in consideration of the aggregation criteria set forth in ASC 280. All other operating segments, which comprise our operations in Canada, Europe and international…
• FY2025 10-K: …financial condition, results of operations and cash flows. Shareholder Actions As reported in previous SEC filings, Chipotle and several of its executive officers are defendants in Michael Stradford v. Chipotle et. al., a purported shareholder class action in the U.S. District Court for the Central District of…
• QSR (RESTAURANT BRANDS INTERNATIONAL INC.)
• FY2025 10-K: KitchenMember 2025-01-01 2025-12-31 0001618756 us-gaap:OperatingSegmentsMember us-gaap:ProductMember us-gaap:SalesChannelDirectlyToConsumerMember qsr:FirehouseSubsMember 2025-01-01 2025-12-31 0001618756 us-gaap:OperatingSegmentsMember us-gaap:ProductMember us-gaap:SalesChannelDirectlyToConsumerMember…
• FY2025 10-K: …qsr:RestaurantHoldingsMember 2024-01-01 2024-12-31 0001618756 us-gaap:IntersegmentEliminationMember us-gaap:ProductMember us-gaap:SalesChannelDirectlyToConsumerMember 2024-01-01 2024-12-31 0001618756 us-gaap:OperatingSegmentsMember us-gaap:RoyaltyMember qsr:TimHortonsMember 2024-01-01 2024-12-31 0001618756…

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.
• Economic-unit decomposition (SOTP): each disclosed business unit is assigned its native valuation basis before any multiple is applied. Operating units are valued on enterprise value; funded financial units are valued on their own common equity, because their borrowings fund earning assets rather than levering the parent. A company total is stated only once every material unit carries a supported value and the parent capital bridge reconciles.
• 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.