Money and Finance
Last week I updated my valuation of McDonald's Corporation (MCD) and the price appears to offer a decent value. You can read the full analysis here. As more of a growth play I wanted to take a look at its largest competitor YUM! Brands, Inc. (YUM). YUM! Brands is heavily focused on international expansion which could lead to a long growth curve. Shares of YUM! Brands closed trading on Friday, March 28th at $74.20 giving a current yield of 1.99%.
Discounted Earnings:
Analysts followed by Yahoo!Finance expect YUM! Brands, Inc. to grow earnings 12.32% per year over the next 5 years and I've assumed they can grow at 9.24% (75% of 12.32%) for the next three years and 4.50% in perpetuity. Running these numbers through a discounted earnings analysis with a 10% discount rate and summing over 30 years yields a fair value price of $84.41. This means the shares are trading at a 12.1% discount to the discounted earnings analysis.
Graham Number:
The Graham Number valuation method was conceived of by Benjamin Graham, the father of value investing, and calculates the maximum price one should pay for a company given the earnings and book value. YUM! Brands earned $2.36 per share in fiscal year 2013 and ended with a book value per share of $4.89. The Graham Number is calculated to be $16.11, suggesting that it's overvalued by 360.5%. Since we invest for the future, let's replace the earnings per share with forward looking earnings of $3.63 for FY 2014.
Click here to read the rest of the analysis.
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Money and Finance
How Yummy is Yum Brands' Valuation?
Last week I updated my valuation of McDonald's Corporation (MCD) and the price appears to offer a decent value. You can read the full analysis here. As more of a growth play I wanted to take a look at its largest competitor YUM! Brands, Inc. (YUM). YUM! Brands is heavily focused on international expansion which could lead to a long growth curve. Shares of YUM! Brands closed trading on Friday, March 28th at $74.20 giving a current yield of 1.99%.
Discounted Earnings:
Analysts followed by Yahoo!Finance expect YUM! Brands, Inc. to grow earnings 12.32% per year over the next 5 years and I've assumed they can grow at 9.24% (75% of 12.32%) for the next three years and 4.50% in perpetuity. Running these numbers through a discounted earnings analysis with a 10% discount rate and summing over 30 years yields a fair value price of $84.41. This means the shares are trading at a 12.1% discount to the discounted earnings analysis.
Graham Number:
The Graham Number valuation method was conceived of by Benjamin Graham, the father of value investing, and calculates the maximum price one should pay for a company given the earnings and book value. YUM! Brands earned $2.36 per share in fiscal year 2013 and ended with a book value per share of $4.89. The Graham Number is calculated to be $16.11, suggesting that it's overvalued by 360.5%. Since we invest for the future, let's replace the earnings per share with forward looking earnings of $3.63 for FY 2014.
Click here to read the rest of the analysis.
If you want to receive posts via email and sign up for my newsletter you can do so here or on the Subscribe page at the top of this blog.
- Can Johnson & Johnson Cure What Ails Your Portfolio?
Johnson & Johnson (JNJ) is well known around the dividend growth investing community with over 50 consecutive years of dividend increases. Chances are there's Johnson & Johnson products in your medicine cabinet right now and if you've...
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As a dividend growth investor, consumer staples companies are great because people need to brush their teeth, clean their house and wash their body whether the economy is in boom or bust mode. It's the consistency in their operations and steady,...
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I'm always on the lookout for new to me dividend growth companies and recently received a request to do a full analysis on Family Dollar Stores, Inc. (FDO). What was really surprising is that Family Dollar Stores has a 38 year history of increasing...
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