Pizza Hut's Underperformance Raises Questions, but Sell-Off Discounts KFC's Long-Term Opportunity
Pizza Hut's underwhelming comps (negative 5% versus 5% at KFC and 3% consolidated) and restaurant margins (down 920 basis points to 10.5%) were the clear story in wide-moat Yum China's first-quarter update, but we encourage investors to focus on the ongoing success of KFC and measures the company can take to revitalize Pizza Hut. We're maintaining our $47 fair value estimate, which assumes 7%-8% currency-neutral average annual top-line growth the next five years, driven by high-single-digit unit...Yum China Holdings is a holding company. Through its subsidiaries, the company is a restaurant company in the People's Republic of China (China). The company's restaurant base consists of restaurant concepts, including KFC, Pizza Hut brands, as well as brands such as East Dawning, Little Sheep, Taco Bell and COFFii & JOY. The company has the right to operate and sublicense the KFC, Pizza Hut and Taco Bell brands in China (excluding Hong Kong, Taiwan and Macau), and own the intellectual property of the East Dawning, Little Sheep and COFFii & JOY concepts outright. Most restaurants in the KFC, Pizza Hut, East Dawning, Taco Bell and COFFii & JOY concepts provide delivery service.
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