Автор работы: Пользователь скрыл имя, 17 Апреля 2013 в 17:53, практическая работа
Yum! Brands, Inc. was the largest fast-food company in 2004.It operated more than 33,000 KFC, Pizza Hut, Taco Bell, Long John Silver’s and A&W restaurants Worldwide. It was the market leader in the chicken, pizza, Mexican, and seafood segments of the US. Fast-food industry brands also operated more than 12,000 restaurants outside the united states.KFC and Pizza Hut accounted for more than 96 percent of the company’s international restaurant base and managed restaurant in 116 countries.
4. Profitability
MCD develops channels of returns receivables and stays stable even with extra profit that increases each year.
5. Market value
Here MCD offers lower values, so YUM! is more preferable in this question for investors.
6. Dividend
MCD provides higher dividends.
The Gordon growth model is a tool that is commonly used to value stock and to make a decision “buy or not to by” particular stock.
Originally developed and published in 1959 by professor Myron Gordon .
The aim of the method is to determine a fair price of the stock or company in today’s terms, by using discount cash flows to take into account the Present Value (PV) of future dividends.
Where:
K = rCAPM(annual) = 11.44%
D = 0.91$
g = rCAPM - DY = 9.38% (annual)
Po = 0.91*(1+0.0938) / (0.1144 - 0.0938) = 0.995358
/ 0.0206 = 48.32$
Gordon’s model was calculated based on 2010 year. At the end of 2010 the price was 49.18$.
As the fair price 48.32$, we would recommend to hold YUM! shares.
Though that must not be the only criteria.
The market returns stay stable during the year, but we can see, that YUM! returns were fluctuating. It does not mean that returns did not just stop coming to the fast food market, but that returns started coming to the competitors at the same market. This can be explained by different factors such as:
S&P
500
Mean=0.24%
ST=2.40%
CV=9.99 times
Comments:
YUM! Has a weekly return of 0.71%, which is 36.92% annual. In comparison with the market (12.48% annual) it is almost 3 times better. As for the risk it takes – it’s not much over the market ones, but return is more than worth it.
CV of YUMs’ stock is good and more preferable for the rational investor
This chart shows us the relationship between returns on a stock and returns on the market. Alpha and Beta of a stock are usually reflected in specific equation (y = βx+α). It also shows the difference between systematic and unsystematic risk.
In our case, YUM has a defensive Beta (0.87 times),
which means that the tendency of a security's returns to respond to
“swings" in the market is pretty stable. YUMs’ β of 0.87times at 2010 means
that the security was less volatile than the market.
As for the Alpha of this stock – it is positive (+0.49%) and that’s obviously good, because Alpha display an “abnormal return” on this particular stock for investors.
Capital Asset
Pricing Model. Security Market Line
Security Market Line (SML), basically, is a graphical expression of Capital Asset Pricing Model. On this graph we can see the relationship between an asset’s systematic risk (Beta) and the required rate of return.
= 0.0618% + 0.87times * (0.24% - 0.0618%) = 0.22%
In our case, we see that YUMs’ assets, in terms of investing, offer a reasonable return for the risk it has.
The line starts from a risk-free rate with a zero β to the market with Capital Asset Pricing Model Return of 0.22% and β of 0.87times. We also can see the point of market return (0.24%) which is higher than our rCAPM, but much lower than the actual return of YUM stock. As we found our Alpha, by the following formula:
Where, = 0.71% - 0.22% = 0.49%,
we may say, that investing in YUM in 2010 was a good decision and brought profit to its’ initiators.
Corelation |
0,76 |
Beta |
0,87 times |
|
|
Also, by using “coefficient of determination” ( = 0.5829) given us by the SCL graph we found a “coefficient of correlation” ( ). This means that YUMs’ stock and S&P 500 are positively correlated and they’re suppose to move in the same direction (as one increases, the other will increase)
Yum Brands, Inc. Dividend History
YUM has paid dividends to shareholders since August 2004. At the first sight YUM has fixed quarterly dividends with annual increases (every four quarters since 6 of August 2004 to 7th of February 2007). But there was also abnormal growth in 2007. As can be seen in the 1st quarter dividend per share was 0,15 and in the 2nd quarter it was 0,30. Also YUMs dividend paid out remained constant at $0.19 from 1st of August 2008 to 7th of August 2009 (for 5 quarters).
So in the overall trend we can see that dividends are not regular with a premium in 2007 and as a result we come to the point that YUM has a Hybrid model of dividends.
As can be seen from the graph Yum! paid its first dividend in 2004, and has increased it every year since.
What is a Common Stock? It is a stock that represents ownership in the company. Sometimes there are dividends, sometimes not.
According to ratio analysis of Yum! Brands Inc. we can say that financial health of this company is strong. Net Profit Margin is 10% for last two consecutive years, which is good.
Yum! Brands Inc. occupies first places in asset management and returns among its competitors (McDonalds, Wendy’s Arby’s etc.)
YUM has a defensive Beta (0.87 times) and low CV(3.86 times) which is supposed to be attractive for investors.
YUM’s share price increased 40% in 2010, rewarding shareholders for its performance in the marketplace.
The company continue to be a leader among consumer companies with Weighted Average Cost of Capital (WACC) more than 10%+, Return On Invested Capital (ROIC) at 20%+. As this capital is deployed to high-growth emerging markets such as China, India and Russia, they expect total returns to remain strong.
These returns will further improve as YUM continue to refranchise restaurants, as they have in the US, Mexico and Taiwan, which will increase its franchise fees with minimal capital investment.
Yum! Brands Inc. - is one of the unique companies that can CONTINUE to make significant capital investments year after year (about $800 million) AND pay a meaningful dividend (2.4% yield) AND grow EPS in double digits (17%) AND make investments in share repurchases with excess cash flows.
Company has a very strong balance sheet that gives it plenty of insulation from any unforeseen challenge. Yum! Brands is in strong financial shape and is a great opportunity for those, who want to invest in it.
Conclusions