Zacks Investment Research downgraded shares of Yum! Brands Inc. (YUM) from NEUTRAL to UNDERPERFORM on February 26, 2013, with a target price of $59.00.
We are downgrading our recommendation on Yum from Neutral to Underperform based on the dim outlook for Yum!'s China division, which in turn, compelled the company to slash its 2013 outlook. The recent allegation against the quality of chicken supplied to KFC China is taking a toll on the company's top line. Further, a tough year-over-year comparison and a subdued retail environment in China are concerning. Although Yum!'s fourth-quarter 2012 earnings grew year-over-year and beat the Zacks Consensus Estimate by 2.5%, we believe, the current turmoil in KFC China may prove detrimental to the company's overall business going forward as China has been a crucial player in Yum! Brands' growth story. Although Yum! is striving hard to recoup through further unit development, promotional offers and discounts, and revitalization of the other core brands across the globe, we prefer to remain on the sidelines till we see any definite sign of improvement.
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