Yum! Brands (YUM) misses again. It goes down big and then bounces back. You would think that this is impossible: how many times can one company miss and yet still bounce back? How many times can a company miss because of Chinese same store sales numbers -- they look like they might be down as much as 20% in the fourth quarter -- and we don't just say "enough is enough, we can't touch this thing?"
And the answer? As long as there is hope that the company might split into four divisions: Taco Bell, KFC, Pizza Hut and Yum International. That's been the reason why it hangs in and it is the reason why buyers and analysts are willing to look the other way at this one.
There's only one problem: the company seems to have no desire whatsoever to take these actions. In fact, the company, as represented by its long-time CEO, David Novak, thinks the structure's good and it is just a matter of time before its fortunes turn around in China and you get good growth again.
There's a new wrinkle that makes investors hopeful that Novak's wrong, though. Greg Creed, a new CEO, is coming from Taco Bell and the skeptics are sensing that he's not as wedded to the current structure as Novak is. The ever-hopeful analysts think that there is tremendous value to unlock here, and those pieces would be worth much more than the whole.
But what if the skeptics are wrong? What if Novak's vision is Creed's vision? Then I think, once again, you are at the mercy of the Chinese food chain and the poor publicity that comes from any spoilage.
My charitable trust owned Yum several times and made decent money in it every time until the end, when we just became convinced that China had it in for KFC and there were no break-up plans.
In a world where there are so many good restaurant stocks to own, stocks like Fiesta (FRGI) group, owner of Taco Cabana and Pollo Tropical, or DineEquity (DIN), which has done a superjob with IHOP and Applebees, or Jack in the Box (JACK) with its red-hot Qdoba business, I don't know why you want to be at the mercy of this particular company, other than profound memories of yesteryear.
Now, it is true that if China were to be "fixed" so to speak, the stock would go a lot higher, in part because there are good things happening domestically at Taco Bell and Pizza Hut. The numbers are better. Plus the lower price of gasoline is a huge windfall for the typical customer of these restaurants.
But I think that it will require tremendous patience to weather the turn, and I believe most people simply will find that length of time and the slaughtering the stock takes periodically for the same issue to be too much to handle, and will ultimately keep a lid on what had been a great American growth story.
