Stock Analysis on Net

YUM! Brands Inc. (NYSE:YUM)

This company has been moved to the archive! The financial data has not been updated since October 11, 2016.

Dividend Discount Model (DDM)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.


Intrinsic Stock Value (Valuation Summary)

YUM! Brands Inc., dividends per share (DPS) forecast

US$

Microsoft Excel
Year Value DPSt or Terminal value (TVt) Calculation Present value at 11.07%
0 DPS01 1.69
1 DPS1 2.25 = 1.69 × (1 + 33.28%) 2.03
2 DPS2 2.87 = 2.25 × (1 + 27.20%) 2.32
3 DPS3 3.47 = 2.87 × (1 + 21.13%) 2.53
4 DPS4 3.99 = 3.47 × (1 + 15.05%) 2.62
5 DPS5 4.35 = 3.99 × (1 + 8.98%) 2.57
5 Terminal value (TV5) 227.23 = 4.35 × (1 + 8.98%) ÷ (11.07%8.98%) 134.44
Intrinsic value of YUM! Brands Inc. common stock (per share) $146.52
Current share price $88.25

Based on: 10-K (reporting date: 2015-12-26).

1 DPS0 = Sum of the last year dividends per share of YUM! Brands Inc. common stock. See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Required Rate of Return (r)

Microsoft Excel
Assumptions
Rate of return on LT Treasury Composite1 RF 4.67%
Expected rate of return on market portfolio2 E(RM) 13.79%
Systematic risk of YUM! Brands Inc. common stock βYUM 0.70
 
Required rate of return on YUM! Brands Inc. common stock3 rYUM 11.07%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rYUM = RF + βYUM [E(RM) – RF]
= 4.67% + 0.70 [13.79%4.67%]
= 11.07%


Dividend Growth Rate (g)

Dividend growth rate (g) implied by PRAT model

YUM! Brands Inc., PRAT model

Microsoft Excel
Average Dec 26, 2015 Dec 27, 2014 Dec 28, 2013 Dec 29, 2012 Dec 31, 2011
Selected Financial Data (US$ in millions)
Dividends declared 756 691 635 569 501
Net income, YUM! Brands, Inc. 1,293 1,051 1,091 1,597 1,319
Revenues 13,105 13,279 13,084 13,633 12,626
Total assets 8,075 8,345 8,695 9,011 8,834
Shareholders’ equity, YUM! Brands, Inc. 911 1,547 2,166 2,154 1,823
Financial Ratios
Retention rate1 0.42 0.34 0.42 0.64 0.62
Profit margin2 9.87% 7.91% 8.34% 11.71% 10.45%
Asset turnover3 1.62 1.59 1.50 1.51 1.43
Financial leverage4 8.86 5.39 4.01 4.18 4.85
Averages
Retention rate 0.49
Profit margin 9.66%
Asset turnover 1.53
Financial leverage 4.61
 
Dividend growth rate (g)5 33.28%

Based on: 10-K (reporting date: 2015-12-26), 10-K (reporting date: 2014-12-27), 10-K (reporting date: 2013-12-28), 10-K (reporting date: 2012-12-29), 10-K (reporting date: 2011-12-31).

2015 Calculations

1 Retention rate = (Net income, YUM! Brands, Inc. – Dividends declared) ÷ Net income, YUM! Brands, Inc.
= (1,293756) ÷ 1,293
= 0.42

2 Profit margin = 100 × Net income, YUM! Brands, Inc. ÷ Revenues
= 100 × 1,293 ÷ 13,105
= 9.87%

3 Asset turnover = Revenues ÷ Total assets
= 13,105 ÷ 8,075
= 1.62

4 Financial leverage = Total assets ÷ Shareholders’ equity, YUM! Brands, Inc.
= 8,075 ÷ 911
= 8.86

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.49 × 9.66% × 1.53 × 4.61
= 33.28%


Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × rD0) ÷ (P0 + D0)
= 100 × ($88.25 × 11.07%$1.69) ÷ ($88.25 + $1.69)
= 8.98%

where:
P0 = current price of share of YUM! Brands Inc. common stock
D0 = the last year dividends per share of YUM! Brands Inc. common stock
r = required rate of return on YUM! Brands Inc. common stock


Dividend growth rate (g) forecast

YUM! Brands Inc., H-model

Microsoft Excel
Year Value gt
1 g1 33.28%
2 g2 27.20%
3 g3 21.13%
4 g4 15.05%
5 and thereafter g5 8.98%

where:
g1 is implied by PRAT model
g5 is implied by Gordon growth model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 33.28% + (8.98%33.28%) × (2 – 1) ÷ (5 – 1)
= 27.20%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 33.28% + (8.98%33.28%) × (3 – 1) ÷ (5 – 1)
= 21.13%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 33.28% + (8.98%33.28%) × (4 – 1) ÷ (5 – 1)
= 15.05%