YUM Expanding Rapidly Overseas
Shares of
Yum! Brands Inc. (
YUM) are a great way to gain exposure to China's booming economy and other fast-growing international markets, while investing in the only stable segment of the restaurant industry. Yum! Brands' two overseas divisions are expanding rapidly.
China and YRI are on track to grow operating earnings by an average compound annual growth rate (CAGR) of 20% and 10%, respectively, over the next five years. The U.S. operations are also showing signs of revival as same-store sales turned positive in 1Q08. Reinvigorating sales was Taco Bell's recent product launches, including fruit smoothies and a value menu. KFC U.S. remains Yum's one weak spot, with an outdated menu. Key to improvement will be its 1H09 launch of a new grilled chicken line, the first step in Yum's strategy to add healthier and more portable menu items.
Overseas expansion remains one of Yum! Brands' key growth drivers. In particular, China offers immense growth potential. KFC is a very strong brand in China with nearly 3,000 locations in 450 cities and more than 380 unit openings planned for 2008. Pizza Hut has over 360 restaurants in more than 80 cities, making it the largest chain in Mainland China. The company expects to add another 85 new restaurants in 2008. The company also has launched a Chinese fast food concept, East Dawning.
In the U.S.division, the company is in the process of reducing its ownership of restaurants from the current level of 22% to less than 10% by the end of 2010. Yum's management is actively managing its capital, returning much of its free cash to shareholders with plans to repurchase up about $4 billion of shares outstanding in 2008 and 2009.
Paccar Blossoms in Int'l Markets
Paccar Inc. (
PCAR is benefiting from rising prices and increasing market share, along with strong growth in Mexico and Australia. However, a strong Class 8 market downturn in the U.S leads us to rate the stock a Hold, with a target of $55.00.
The company's base business in the U.S. and Europe is improving, aside from cyclical effects. In 2008, sales are expected to be in the range of 210,000 to 240,000 units. The company expects 2008 industry sales in Europe to be at a record of 340,000 to 360,000 units.
Over 60% of Paccar's revenues and profits are generated outside the US. The fastest growing businesses of the company are After-market Parts and Financial Services. With PacLease in Europe, the company expects to see continued Financial Services growth. On the other hand, Paccar has a leading share in both Mexico and Australia, both of which are seeing a surge in demand ahead of 2008 emissions deadlines.
|However, the company cut down its retail sales forecast as it expects the economic slowdown to continue through the first half of the year.
