A recommendation upgrade from an analyst put the cap on an encouraging quarterly earnings report.
Economic growth in China might not be what it once was, but certain imported businesses aren’t doing too badly. Case in point: restaurateur Yum China Holdings (YUMC -1.38%), which recently posted quarterly earnings that cheered investors. They also inspired one analyst to upgrade her recommendation on the stock, helping to propel it to a nearly 16% week-to-date gain as of early Friday morning, according to data compiled by S&P Global Market Intelligence.
A new second-quarter top-line record
Yum China unveiled its second-quarter fundamentals after market hours Monday, revealing that it managed to boost revenue by 1% year over year to almost $2.7 billion — a new quarterly record. Admirably, it accomplished this feat despite both the country’s general economic trajectory and a 4% dip in same-store sales. Both GAAP and non-GAAP (adjusted) net income rose to $212 million, or $0.55 per share, from $197 million (GAAP) and $199 million (adjusted) profit figures in the year-ago period.
Although the company missed the consensus analyst estimate for revenue, it easily beat pundit projections for adjusted net income.
Another plus was a seemingly smooth internal transition in the C-suite, with CFO Andy Yeung stepping down this coming September to be replaced on an acting basis by current CIO Adrian Ding.
More growth ahead, analysts believe
The following morning is when that analyst upgrade occurred. The person behind it was Macquarie’s Linda Huang, who now feels Yum China is doing well enough to be rated as outperform (buy), two pegs above her previous evaluation of underperform (sell). It wasn’t immediately clear why Huang made the move, but her new take matches the generally bullish view her peers have of the company.
Collectively, they are anticipating a 4% increase in revenue for this year compared to 2023, accompanied by a more than 10% rise in per-share net income. The analysts are expecting those figures to advance to a respective 9% and 13% for 2025.
Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
