Yum! Brands Inc (YUM)

Conclusion

Yum! Brands franchises and operates quick service restaurants under the KFC, Taco Bell, Pizza Hut and Habit Burger & Grill brands. On 2026-11-09 the shares were priced at 160.88 USD, giving a market capitalisation of 43.28 billion USD and an enterprise value of 52.77 billion USD.

The verdict is fair. The price-to-earnings ratio of 12.57 compares with a ten-year median of 24.51, a premium of -48.7%, and enterprise value to EBITDA of 11.62 compares with a median of 20.32, a premium of -42.8%. The discounted cash flow gives 110.74 USD per share at a discount rate of 8.9%, while the fair value from historical multiples is 243.93 USD. The fair value band runs from 141.87 to 212.80 USD with a midpoint of 177.34 USD, a margin of safety of 10.2%. The reverse DCF implies growth of 9.8% a year, against five-year revenue growth of 7.8% and five-year free cash flow per share growth of 9.6%.

What holds the case up is an operating margin of 49.5% against a ten-year median of 32.2%, a return on invested capital of 103.1% against a WACC of 7.8%, and a five-year free cash flow conversion of 93.0%. What could break it is the trailing free cash flow conversion of 47.0%, net debt to EBITDA of 2.09, and the estimate of insolvency risk at 75.6%, which points the other way from the Altman score.

Financial health

Financial strength is green, supported by an Altman Z-score of 3.42 and interest coverage of 8.56 times, and held back only by a current ratio of 0.96 and net debt to EBITDA of 2.09. The quick ratio is 0.80. Debt to equity is not available because the company has negative shareholder equity. The Altman Z-score of 3.42 sits in the safe zone, but that model was designed for manufacturers, and Yum! Brands is a franchisor of restaurants, so the reading is only a rough guide. Insolvency risk: high, about 75.6% by the estimate of the Ohlson model over one to two years, based on figures at 2025-12-31. The two models therefore give opposite signals, and the Ohlson estimate deserves more weight for a company with negative equity.

Earnings quality

Earnings quality is green, with free cash flow conversion over five years of 93.0% and a share count that fell at a five-year compound rate of 2.0%, which points to buybacks. Trailing free cash flow conversion is lower at 47.0%, and the accrual ratio is -6.0%, which indicates cash earnings above reported earnings. Stock-based compensation is 0.76% of revenue, and free cash flow after it is 1.55 billion USD. The Piotroski score is 5 out of 9. The Beneish M-score is not available. The company beat earnings expectations in 6 of the last 8 quarters, with an average surprise of 2.7%. Estimate revisions are negative: the current year's estimate changed by -3.6% over 90 days, and the next year's by -9.3%, with 7 of 8 next-year revisions downward in the last 30 days.

Profitability

Profitability is green. The operating margin of 49.5% sits well above its ten-year median of 32.2%, and the net margin of 39.1% compares with a median of 22.7%. The gross margin of 42.1% is below its median of 47.5%. Margin stability over the year is 17.4%. Return on invested capital is 103.1% against a WACC of 7.8%, and the given spread between the two is 95.2%, while the five-year median ROIC is 50.4%. Return on equity is not available because equity is negative, so the DuPont split is the only view of leverage. For 2025 it shows a net margin of 19.0% and an asset turnover of 1.00 times, which means the return is driven by margins rather than by financial leverage.

Growth

Growth is yellow. Revenue compounded at 6.3% over three years, 7.8% over five years and 2.5% over ten years. Earnings per share compounded at 7.1% over three years, 13.8% over five years and 6.8% over ten years. Free cash flow per share compounded at 14.2%, 9.6% and 8.4% over the same spans. Revenue grew in 6 of the 10 comparable years. The next-year earnings estimate implies growth of 5.7%, which is the slowest rate in the recent record and is the main reason the growth colour is not higher.

Valuation

Valuation is yellow, with the verdict fair and a margin of safety of 10.2%. Today's price-to-earnings ratio of 12.57 and enterprise value to EBITDA of 11.62 sit well below their ten-year medians of 24.51 and 20.32, while price to free cash flow of 26.75 and price to sales of 4.92 are also below their medians of 29.28 and 5.51. Price to book is not available. The discounted cash flow gives 110.74 USD per share at a discount rate of 8.9%, with 56.5% of its value in the terminal period, and the fair value band is an order-of-magnitude estimate built on fixed assumptions, not a price target. The dividend yield is 1.88%, with a forward yield of 1.81% and a payout of 50.3% of free cash flow.

Risks

The main risk is the insolvency estimate of 75.6%, which the Altman score does not reflect, and a negative equity base that removes debt to equity and return on equity as checks. Net debt to EBITDA of 2.09 and a current ratio of 0.96 leave little room if earnings fall, and trailing free cash flow conversion of 47.0% shows how much cash generation has lagged. Falling estimate revisions, with next-year estimates down 9.3% over 90 days, would weaken the reverse DCF case that the price implies 9.8% growth. Beneish M-score, price to book and the full debt maturity schedule are not available. The analysis also lacks revenue by segment, so the effect of the four brands on the group cannot be separated.