Yum Brands Inc YUM

Dining room reopenings propelled wide-moat Yum Brands to impressive 23% global comparable-store sales growth, with international comps for KFC and Pizza Hut (which generate more than half of their sales abroad, where COVID-19 protocols were more stringent) 25 points and 12 points higher than domestic results, respectively. Consistent with what we’ve seen across our restaurant coverage, easing restrictions released a cascade of pent-up demand, with returning volume pushing all three of Yum’s core brands to comparable-store sales growth relative to 2019 levels (2.7% at KFC, 0.1% at Pizza Hut, and 11.3% at Taco Bell, by our calculations). Improving store-level economics across markets generated strong growth, with the system adding 603 net new units as unit growth reached 2% over the last 12 months (up 160 basis points sequentially). While recent results certainly impressed, our longer-term forecasts are largely intact, though we anticipate a modest midterm increase in unit growth consistent with management’s recently elevated guidance (to 4%-5% annual unit growth, from 4% previously), which appears plausible given KFC’s recent strength and Taco Bell’s growing traction abroad. After marking up our unit growth forecast and layering in a mid-single-digit headwind from Morningstar’s increased U.S. statutory tax rate forecast, we expect a mid-single-digit hike to our $112 fair value estimate, leaving the shares looking expensive at current market prices.