DCF Studio

    YUM · NYQ · Consumer Cyclical

    Yum! Brands, Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 125.87

    Market price

    USD 137.99

    Implied upside

    -8.8%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedCapital expenditure runs at 4.0% of revenue against depreciation of 2.3%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.

    Value Per Share

    Perpetuity growth
    USD 125.87-8.8%
    Exit multiple
    USD 165.91+20.2%
    Market price
    USD 137.99

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn1bn2bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 8.7bnUSD 9.3bnUSD 9.9bnUSD 10.5bnUSD 11.1bn+6.3%
    EBITUSD 2.8bnUSD 2.9bnUSD 3.1bnUSD 3.3bnUSD 3.5bn+6.3%
    NOPATUSD 2.2bnUSD 2.3bnUSD 2.5bnUSD 2.6bnUSD 2.8bn+6.3%
    Add depreciation & amortisationUSD 199.1mUSD 211.6mUSD 224.9mUSD 239.0mUSD 254.0m+6.3%
    Less capital expenditureUSD -349.8mUSD -371.7mUSD -395.1mUSD -419.9mUSD -446.3m+6.3%
    Less increase in working capitalUSD -93.8mUSD -99.7mUSD -106.0mUSD -112.6mUSD -119.7m+6.3%
    Free cashflow to firmUSD 1.9bnUSD 2.1bnUSD 2.2bnUSD 2.3bnUSD 2.5bn+6.3%
    Discount factor0.96420.89630.83320.77450.7200-
    Present valueUSD 1.9bnUSD 1.9bnUSD 1.8bnUSD 1.8bnUSD 1.8bn-1.2%
    Present Value Of The ForecastUSD 9.1bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.699Reported 0.551, pulled toward 1.0 (Blume)
    Cost of equity8.84%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 37.7bn74.1% of capital
    Total debtUSD 13.2bn25.9% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC7.57%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 125.87

    81% of EV

    Forecast FCFF, final year
    USD 2.5bn
    Capex at depreciation, working capital in reinvestment
    USD 2.8bn
    Less reinvestment at g/ROIC (4.6% of NOPAT)
    USD -129.4m
    Capitalised
    USD 2.7bn
    ROIC (reported)
    53.9%
    Terminal value, undiscounted
    USD 53.8bn
    Terminal value, discounted
    USD 38.7bn
    Enterprise value
    USD 47.9bn
    Less net debt
    USD 12.5bn
    Equity value
    USD 35.4bn

    Exit at 18.3x EBITDA

    Value per shareUSD 165.91

    85% of EV

    Terminal value, undiscounted
    USD 69.4bn
    Terminal value, discounted
    USD 50.0bn
    Enterprise value
    USD 59.1bn
    Less net debt
    USD 12.5bn
    Equity value
    USD 46.6bn

    Spread between methods: 27%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    5.57%178.14203.51237.10283.73352.79
    6.57%133.92149.02167.82191.85223.69
    7.57%104.29114.12125.88140.19157.99
    8.57%83.0689.8697.77107.08118.22
    9.57%67.1272.0377.6384.0791.55

    Outlined: this model. Green text: above today's price of 137.99. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year6.3%7.9%+1.6pp
    EBIT margin31.7%33.9%+2.2pp
    Discount rate7.6%7.2%-0.3pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.