By Mark Kalinowski
Published on April 24, 2020 at 12:00 AM
With this report, we change our rating on Yum Brands (YUM; $85.61) to Neutral (from Buy). This change largely reflects the following factors: (1) currencies that may work against Yum’s earnings over the remainder of 2020, (2) other costs that may creep up in Q2, (3) the possibility of store closures hurting Q2 by more than the Street anticipates, (4) possible same-store sales issues at Taco Bell, and (5) YUM shares’ +55% rise off of its 52-week low, which has allowed it to come within less than 50 cents of our $86 target price (which we now move to “NA” with this report. We note the following:
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By Mark Kalinowski
Published on April 23, 2020 at 12:00 AM
Earlier today, Domino’s (DPZ; Neutral, $364.00) reported Q1 EPS of $3.07, well above our $2.35 forecasts and sell-side consensus (according to Consensus Metrix) of $2.32. The earnings beat is largely due to tax rate, which came in at -3.7% (i.e., a helpful tax rate) vs. our 19.0% forecast and consensus of 18.7%. If the Q1 tax rate had been 19.0% (and nothing else in the Q1 income statement was changed), we estimate that Q1 EPS would have been about $2.40 — an earnings beat, but nevertheless not quite as good as what appeared at first glance. On today’s conference call, management commented that the Q1 tax rate reflected “tax benefits on equitybased compensation,” and that it anticipates continued volatility in the tax rate going forward.
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