By Evie Liu
Shares of Yum! Brands -- the fast-food giant that owns Taco Bell, KFC, and Pizza Hut -- have gone nowhere this year even as the company delivered a 15% revenue growth and 72% earnings growth in the first quarter. Morgan Stanley thinks this creates a buying opportunity.
The firm upgraded Yum stock to Overweight from Equal Weight on Wednesday and raised its price target to $185 from $180, arguing that investors are underestimating the company's growth prospects, technology initiatives, and the potential value that could be unlocked through strategic changes at its struggling Pizza Hut.
The stock is up 2.3% to $150 on Wednesday while the S&P 500 index is down 0.4%.
Analyst Brian Harbour believes Yum offers some of the strongest growth potential among large franchised restaurant companies, yet the stock's current pricing fails to reflect those advantages. Shares trade at roughly 21.5 times next-12-month earnings, below both its recent five-year average and prepandemic valuation levels.
Taco Bell is a key pillar of the bullish case. The chain has been one of the best-performing brands in quick-service restaurants, benefiting from strong digital engagement, menu innovation, and a reputation for value.
Harbour expects it to continue gaining market share even as same-store sales growth moderates from recent highs. The brand is well positioned as consumers remain focused on affordability but still want new menu offerings and experiences, he wrote.
KFC is also doing well as it expands in international markets and see sales gains. There are also signs of improvement in the U.S. Harbour expects KFC to remain attractive as consumers across global markets seek value deals amid ongoing economic pressures.
In the first quarter, KFC and Taco Bell's system sales increased 6% and 10%, respectively, while adjusted operating profit saw 9% and 16% gains, respectively.
Pizza Hut might be the biggest wildcard. The pizza chain has been struggling with rising costs and stiff competition in recent years. In Yum's first-quarter report, Pizza Hut's system sales were flat from a year ago, while adjusted operating profit declined 16%.
Yum has been exploring strategic alternatives for the brand, including a potential sale. Divesting Pizza Hut could reduce earnings initially, wrote Harbour, but it would leave Yum with a cleaner portfolio centered on faster-growing brands, which could support a higher valuation over time.
With food inflation re-emerging and consumers remaining cautious, Harbour believes Yum's asset-light franchise model makes it more insulated from commodity and labor cost increases than chains that operate their own restaurants and directly absorb those costs.
Yum has also invested heavily in technology, including digital ordering, loyalty programs, artificial intelligence, and Byte by Yum -- a platform that bundles together many of the software and AI tools the company has acquired and developed over the past several years.
Harbour argues Yum's technology investments are already producing measurable results, pointing to Taco Bell's industry-leading sales growth. The chain's digital channel contributed to nearly half of total sales in 2025, up from around 30% just two years ago.
Write to Evie Liu at evie.liu@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
June 03, 2026 12:05 ET (16:05 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
Comments