With this report, we introduce our quarterly EPS estimates for Yum Brands (YUM; Neutral, $96.15) for 2021E as follows:
Q1E: $0.84
Q2E: $0.90
Q3E: $1.00
Q4E: $1.16
Quick-service pizza sector same-store sales have performed the best of any sector in the U.S. restaurant industry the last few months. This likely means that some large franchise companies who seek opportunities within the restaurant industry may examine possibilities in the pizza sector. Carryout/delivery pizza plays very well in a world uncertain about how COVID-19 and related issues will impact the future. On top of that, not only has Papa John’s (PZZA; Buy, $96.15) put up great domestic same-store sales numbers the last few months — up by +30.3% for June 29-July 26, of example — it also seeks franchisees. In this report, we examine some possible franchised companies that are not currently in the pizza space, but could join in under the right circumstances. All in all, we believe that Papa John’s is poised to reward shareholders by (1) improving the quality of its franchisee base, and (2) at some point engaging in meaningful refranchising activity, which could lead to a higher valuation multiple for PZZA shares.
Earlier today, Yum Brands (YUM; Neutral, $91.46) reported that its adjusted Q2 EPS came to $0.82, well ahead of our $0.55 forecast and sell-side consensus (according to Consensus Metrix) of $0.57. The $0.82 figure included a +21 cent benefit related to Yum’s investment in Grubhub (GRUB; Not Rated). Adjusted EPS would have been about $0.61 excluding the mark-to-market for this investment.