Replies to post #6629 on The Rising Influence of Rising Affluence

[DewDiligence]

Now that the chicken scandal is behind it, is YUM a good buy? WSJ says no:

http://online.wsj.com/article/SB10001424127887324867904578595953069701588.html

Second-quarter earnings per share, due Wednesday, now are expected to be 54 cents—almost 30% less than what analysts expected in December…

…The more pertinent issue: Are investors now overpaying for growth even after the shares lagged behind the market following the poultry problem? The stock trades at more than 23 times the next 12 months' forecast earnings. That is about a fifth more expensive than on average over the past decade even though Yum will have a hard time matching that period's strong results.

…True, there are more growth markets besides China. Yum points out that it has 58 restaurants per million people in the U.S. and just two per million in the 10 largest emerging markets combined.

But competitors such as McDonald's Corp. are making the same bet. And countries such as India, while huge, aren't nearly as receptive to fast food. Even Yum's 15% long-term growth target in China seems iffy.

[DewDiligence]

The mishaps of YUM in China have left me wondering if restaurants are an intelligent way to capitalize on The Global Demographic Tailwind. Today’s NYT has a piece on the growth of multinational restaurant chains in India:

http://india.blogs.nytimes.com/2014/01/08/a-growing-taste-for-u-s-fast-food-in-india

India has long had a reputation as being unfriendly to foreign businesses, but when it comes to fast food, international chains are being warmly welcomed by a young, upwardly mobile population.

In the past few months, Taco Bell, Krispy Kreme, Burger King and McDonald’s have either announced plans to expand in India or have opened new outlets around the country.

I don’t currently own any restaurant companies.

[DewDiligence]

Barron’s feature on YUM says that 35% of company’s profits come from China:

http://online.barrons.com/article/SB50001424053111904148504579406814271264166.html

If I recall correctly, YUM’s proportion of profits from China was 50-60% before the 2012 debacle where YUM lost market share due to the purportedly excessive use of antibiotics in its chickens. If this is correct, it implies that YUM’s recovery has left it below its prior share of the Chinese market.