Financial Analysis: Yum China (YUMC) & Arcos Dorados (ARCO)
Yum China (NYSE: YUMC) and Arcos Dorados (NYSE:ARCO) are both mid-cap retail/wholesale companies, but which is the superior business? We will contrast the two companies based on the strength of their valuation, risk, analyst recommendations, earnings, dividends, profitability and institutional ownership.
Yum China pays an annual dividend of $0.10 per share and has a dividend yield of 0.2%. Arcos Dorados does not pay a dividend. Yum China pays out 6.8% of its earnings in the form of a dividend. Yum China has raised its dividend for 3 consecutive years.
This table compares Yum China and Arcos Dorados’ net margins, return on equity and return on assets.
|Net Margins||Return on Equity||Return on Assets|
This is a breakdown of recent ratings for Yum China and Arcos Dorados, as provided by MarketBeat.
|Sell Ratings||Hold Ratings||Buy Ratings||Strong Buy Ratings||Rating Score|
Yum China currently has a consensus price target of $44.41, indicating a potential upside of 8.55%. Arcos Dorados has a consensus price target of $10.87, indicating a potential upside of 8.13%. Given Yum China’s higher possible upside, research analysts clearly believe Yum China is more favorable than Arcos Dorados.
Institutional & Insider Ownership
80.1% of Yum China shares are owned by institutional investors. Comparatively, 36.6% of Arcos Dorados shares are owned by institutional investors. 0.2% of Yum China shares are owned by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock will outperform the market over the long term.
Valuation and Earnings
This table compares Yum China and Arcos Dorados’ top-line revenue, earnings per share (EPS) and valuation.
|Gross Revenue||Price/Sales Ratio||Net Income||Earnings Per Share||Price/Earnings Ratio|
|Yum China||$6.75 billion||2.33||$502.00 million||$1.47||27.83|
|Arcos Dorados||$2.93 billion||0.72||$78.81 million||$0.38||26.45|
Yum China has higher revenue and earnings than Arcos Dorados. Arcos Dorados is trading at a lower price-to-earnings ratio than Yum China, indicating that it is currently the more affordable of the two stocks.
Yum China beats Arcos Dorados on 14 of the 16 factors compared between the two stocks.
Yum China Company Profile
Yum China Holdings, Inc. is a restaurant company. The Company’s segments include KFC, Pizza Hut Casual Dining, and All Other Segments, including Pizza Hut Home Service, East Dawning, Little Sheep and Taco Bell. As of December 31, 2016, the Company had over 7,500 restaurants in China. Its restaurant base consists of various restaurant concepts. The Company’s restaurants in each of its concept offer consumers the ability to dine in and/or carry out food. In addition, KFC, Pizza Hut Casual Dining, Pizza Hut Home Service and East Dawning offer delivery service. KFC is the quick-service restaurant (QSR) brand. Pizza Hut Casual Dining is the casual dining restaurant (CDR) brand. As of December 31, 2016, the Company had over 360 Pizza Hut Home Service units in over 50 cities in China. The Little Sheep concept specializes in Hot Pot cooking. East Dawning is a Chinese food QSR brand. Taco Bell is a QSR brand specializing in Mexican-style food.
Arcos Dorados Company Profile
Arcos Dorados Holdings Inc. is a McDonald’s franchisee. The Company operates or franchises over 2,140 McDonald’s-branded restaurants. It divides its operations into four geographical divisions: Brazil; the Caribbean division, consisting of Aruba, Colombia, Curacao, French Guiana, Guadeloupe, Martinique, Puerto Rico, Trinidad and Tobago, the United States Virgin Islands of Saint Croix and Saint Thomas, and Venezuela; the North Latin America division (NOLAD), consisting of Costa Rica, Mexico and Panama, and the South Latin America division (SLAD), consisting of Argentina, Chile, Ecuador, Peru and Uruguay. Its menus feature over three tiers of products: entry-level options, such as its Big Pleasures, Small Prices offerings and Almuerzos Colombianos (Colombian Lunches) in Colombia; core menu options, such as the Big Mac, Happy Meal and Quarter Pounder, and premium options, such as Big Tasty or Angus premium hamburgers and chicken sandwiches and low-calorie or low-sodium products.
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