Jim Grant Questions KFC’s China Strut – Businessweek
What is it exactly about high finance’s love-hate relationship with lowbrow dining, namely Yum! Brands (YUM), the parent of KFC, Taco Bell, and Pizza Hut? Early this month, hedgie David Einhorn cited Taco Bell’s up-market march to the sea as reason to short burrito insurgent Chipotle (CMG). Yes, seriously: that same Taco Bell of high school 59¢ munchies fame.
But in the Oct. 5 issue of Grant’s Interest Rate Observer, editor Jim Grant called for (log-in required) curbed enthusiasm on Yum, which moves an unbelievable amount of fried chicken in China—perhaps too much, he says, for comfort. “Now unspooling,” he wrote, “is a bearish analysis of Yum! Brands, a company that owes its 21st-century growth spurt to the world’s most overrated economy.”
Yum, Grant concedes, has been quite successful since its 1997 spinoff from PepsiCo (PEP). Its stock has since produced a total return of almost 1,000 percent on an 11.5 percent annual expansion of free cash flow and at least 10 percent growth in dividends since it started paying them out in 2004.
According to Bloomberg data that compares U.S. fast-food joints, KFC has the biggest exposure to global emerging-consumer markets, with half its stores in that growing universe.