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UBS Upgrades Yum Brands (YUM)

Shares of Fast food chain, Yum! Brands Inc. (NYSE: YUM) gained on Friday after equity research analysts at UBS AG upgraded the stock to “buy” from “neutral”.

UBS said that both sales in China and profitability are expected to improve.

Yum! Brands which own brands such as Pizza Hut, Taco Bell and KFC, saw its sales in China fall sharply since last December after a study found that certain items contained hazardous chemicals (the poultry suppliers were at fault). The whole episode brought bad publicity resulting in Chinese customers avoiding to dine at its outlets. Later, the outbreak of avian flu in China also deterred Chinese to eat poultry items.

At the end of the first quarter, the Company said that sales at established store fell 20% in China due to bird flu epidemic.

While addressing analysts, Yum CEO David C Novak said that the Company was trying to pacify customer’s concerns by running an “aggressive quality assurance marketing campaign” in China, at that moment. However, he also added that bird flu outbreak heavily weighed on its same-store-sales, in the fiscal first quarter.

Yum, current operates 5,300 stores in China, dominated by KFC stores.

In the recent past several Wall Street analysts have commented on the stock. On May 28th, analysts at The Street reaffirmed “buy” rating on the stock. Earlier in May 22, analysts at Jefferies maintained “hold” rating on the stock and set a price target of $67.

Overall, thirteen equity research analysts have assigned “hold” rating on the stock, eleven have kept “buy” rating while one analysts maintains “sell” rating on the stock. On average, the stock has “hold” rating with price target of $69.47.

The Company is scheduled to report fiscal second quarter results on July 11. In the first quarter, the Company posted better-than-expected results.

For the fiscal first quarter, the Company posted net income of $337 million compared to $458 million, in the same period of last fiscal year. On adjusted basis the Company earned 70 cents compared to 76 cents in the same period of last year. Revenue fell 7% to $2.54 billion from $2.74 billion. Analysts surveyed by Thomson Reuters had forecasted earnings of 60 cents a share on revenue of $2.56 billion.


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