YUM Yum! Brands
A great royalty machine priced like a growth stock; the leverage and 6% growth don't justify $137.
The story
Yum! is a 98%-franchised tollbooth on KFC, Taco Bell and Pizza Hut. It collects royalties on more than 60,000 units, and its moat is brand scale plus an asset-light model. It is a mature, slow-reinvestment business: unit growth comes mostly from KFC in emerging markets and Taco Bell, and Pizza Hut is a drag. Heavy leverage (about $11B of net debt) turns modest operating growth into per-share returns but adds fragility.
No material facts changed. TTM revenue of $8.72B (about 6% growth) and a 31.1% margin confirm the prior story, so every driver stays the same. The margin holds near 31% (franchise economics, not expansion), sales-to-capital matches the reported 1.97, and a 7-year horizon fits a mature franchisor whose 3.5% terminal growth stays below the risk-free rate.
Value drivers
| Revenue growth (Y1) | 6.0% |
| Terminal growth | 3.5% |
| Forecast horizon | 7y |
| Target operating margin | 31.0% |
| Years to target margin | 3 |
| Sales-to-capital | 1.97 |
| Beta | 0.95 |
| Failure probability | 2.0% |
| Cost of capital (WACC) | 8.7% |
| Terminal WACC | 8.9% |
Valuation bridge
| PV of explicit FCFF | 11.22B |
| PV of terminal value | 22.85B |
| Equity value | 22.56B |
| ÷ shares → per share | $82.67 |
Projected free cash flow to the firm
| Yr | Revenue | Growth | Margin | NOPAT | Reinvest | FCFF | PV |
|---|---|---|---|---|---|---|---|
| 1 | 9.25B | 6.0% | 31.0% | 2.15B | 265.71M | 1.89B | 1.74B |
| 2 | 9.76B | 5.6% | 31.0% | 2.27B | 262.09M | 2.01B | 1.70B |
| 3 | 10.27B | 5.2% | 31.0% | 2.39B | 256.07M | 2.13B | 1.66B |
| 4 | 10.76B | 4.8% | 31.0% | 2.50B | 247.58M | 2.26B | 1.61B |
| 5 | 11.22B | 4.3% | 31.0% | 2.61B | 236.59M | 2.37B | 1.56B |
| 6 | 11.66B | 3.9% | 31.0% | 2.71B | 223.11M | 2.49B | 1.51B |
| 7 | 12.07B | 3.5% | 31.0% | 2.81B | 207.19M | 2.60B | 1.45B |
Key risks
- Leverage of about 5x EBITDA makes it sensitive to refinancing rates and royalty slowdowns
- Weak traffic at Pizza Hut and in KFC international markets, plus value wars squeezing franchisee economics
- FX and emerging-market geopolitical exposure
Catalysts
- Taco Bell international and digital/AI ordering speeding up same-store sales
- A Pizza Hut strategic review or divestiture simplifying the portfolio