Why I'm Bullish on This Restaurant Chain
Yum! Brands (NYS: YUM) , the parent company of Taco Bell, KFC, and Pizza Hut, truly is an interesting company. As reported by QSR Magazine, its variety of product lines allowed it to dominate four of eight food categories last year. As good as last year was for the company, I think it will continue to outperform over the next couple of years. I am backing up this prediction with a CAPScall, giving the company a thumbs-up rating.
I am excited for the prospects of this company primarily based on two factors: international growth and the rebound of Taco Bell in the U.S.
Continuing growth in 2012
Yum! Brands recent success has been driven by its staggering growth in China. It has built a staggering 5.2% market share in fast food, more than double chief rival McDonald's (NYS: MCD) in the world's most populous nation. With more than 4,000 outlets in China, mostly KFC restaurants, Yum! has been able to tailor the U.S. brands to local customers, primarily by focusing on full-service restaurants that offer a more social dining experience than what similar stores would offer in the U.S.
Yum! Brands hopes that past performance in China is an indicator of future success in India. The company has announced plans to spend $150 million to reach 1,000 stores in India by 2015. It further expects that revenue in India will reach $1 billion by 2015 as well. In preparing for this expected performance, the company has decided to report the second-most populous country as a separate segment going forward, allowing the company and investors alike to track the growth of the company in India.
Taco Bell begins to rebound
Taco Bell is in a prolonged slump in the U.S. One contributing factor is the negative feedback as a result of numerous lawsuits questioning the contents of the restaurant's meat filling. Nevertheless, the company has big plans for 2012, beginning with a partnership with PepsiCo's (NYS: PEP) Frito-Lay and the introduction of nacho-cheese-flavored taco shells in March. The chain is also introducing breakfast at nearly 800 locations in the West, with hopes of expanding breakfast offerings nationwide.
With Taco Bell making up about 60% of U.S. sales, it is important for the company to recover fully from the meat lawsuits. Taco Bell has responded by placing their sights on fellow fast-food slinger Chipotle Mexican Grill (NYS: CMG) . Chipotle has carved a profitable and growing niche by developing a simple, high-quality menu. Taco Bell is firing back and aims to revamp its menu to mimic the fast-food rock star. If the Chipotle 2.0 strategy pays off, Taco Bell could push higher from its current sixth place ranking among U.S. restaurant chains.
An American company with international exposure
With strong performance in the most populous countries in the world, and the recovery of an iconic American brand, Yum! Brands is poised to continue its recent performance. It is for these reasons that I have made a bullish CAPScall on the company, but it also the reason why it is included in our new free report "3 American Companies Set to Dominate the World." To find out the other two options to add an international flair to your portfolio, download a copy today!
At the time this article was published Fool contributor Robert Eberhard holds no position in any company mentioned. Follow him on Twitter. The Motley Fool owns shares of Yum! Brands, PepsiCo, and Chipotle Mexican Grill. Motley Fool newsletter services have recommended buying shares of Chipotle Mexican Grill, McDonald's, PepsiCo, and Yum! Brands. Motley Fool newsletter services have recommended creating a diagonal call position in PepsiCo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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