DALLAS, TX -- August 26, 2026 -- Yum! Brands (NYSE: YUM): Stonegate Capital Partners initiates coverage on Yum! Brands (NYSE: YUM). Yum!’s 2Q26 provides evidence that the post-Pizza Hut earnings model is becoming increasingly centered on Taco Bell’s U.S. growth and KFC’s international development runway. Ex-Pizza Hut, system sales increased 7%, units 6%, same-store sales 4%, and Core Operating Profit 8%. The July food safety issue creates a near-term Taco Bell interruption, but we view the impact as temporary. Sales trends have improved from the July 18 low, online sentiment has returned to pre-issue levels, and brand-love measures remain intact. The quarter also reinforces the broader operating model, with stronger restaurant-level performance supporting franchisee returns, faster unit development, and growth in Yum!’s recurring royalty base.
Quarterly Results: Adjusted EPS of $1.62 exceeded $1.56 consensus, while revenue of $2.17B was modestly below $2.18B consensus. Worldwide system sales increased 5% ex-FX and Core Operating Profit grew 5%; excluding Pizza Hut, Core Operating Profit increased 8% despite an approximately three-point drag from refranchising-gain timing and Habit closure costs. Digital sales approached $9B ex-Pizza Hut and reached a 61% mix, expanding the installed base for loyalty, targeted promotions, and Byte improvements.
Taco Bell: Taco Bell continues to justify its role as Yum!’s domestic earnings engine. Same-store sales increased 7%, U.S. system sales rose 9%, and U.S. equity restaurant margins reached 26.2%, up 170 bps y/y, while digital mix increased five points to 47%. U.S. new-store registrations are above last year’s pace, while international system sales increased 13% ex-FX as the brand adds scale across India, the U.K., Canada, and Sweden. QTD U.S. comps fell to (2%) through July 27 and management expects 3Q equity margins of 19–21%.
KFC / Development: KFC is providing visible proof that attractive franchise economics can translate into faster unit growth. The division opened 660 gross restaurants across 55 markets and grew units 7%, with management expecting its best development year on record. The Middle East reached 1,500 KFC restaurants, supported by 2.5–3.0-year paybacks and approximately $1.5M AUVs, while there is an estimated 20,000-unit whitespace opportunity. Management is also targeting higher AUVs and same-store sales, with early traction in the U.K., Korea, Japan, and Brazil alongside deployment of beverages, sauces, loyalty, and Byte.
Outlook / Capital Allocation: Ex-Pizza Hut results met or exceeded every element of Yum!’s long-term algorithm in 1H26, and management entered 3Q highly confident in achieving or exceeding each element for FY26 before the Taco Bell disruption. Following the disruption, management did not provide a comparable full-year statement. Pizza Hut is expected to close in August, with the two transactions generating approximately $2.3B of combined net proceeds, with revolver repayment followed by share repurchases. Taco Bell’s recovery, KFC development, and continued conversion of digital engagement into stronger restaurant economics remain the key markers into 2H26.
Valuation: We use a combination of a DCF analysis as well as a comp analysis to guide our valuation range for YUM. For the comp analysis we rely on EV/EBITDA, P/E, and FCF/EV yield comparisons. Combining these valuation methods results in a valuation range from $155.72 to $194.12 with a price target of $173.40.
