YUM! Brands, Inc. (YUM)

Total return at 5 years: 7.6%/year = 5.3% appreciation + 2.3% dividend. The target price ($190) is ex-dividend; the $18 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $175 · Multiples $169) exceeds the market price ($147).

Today — fairly valued: at $147 trades ~12.9% below its value discounted to today (~$169); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — En valor: the target price ($190) plus dividends yield between the 4% floor and the 10% average return — a reasonable return, though without the margin of a great investment.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$107.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($147) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (1.0%/year) than we project (5.0%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$1.8 bn of owner earnings in year 5 (vs ~$2.2 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on P/E sobre utilidad neta normalizada (owner earnings). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Year 0 = TTM to 30-Jun-2026, re-based from the 8-K (Item 2.02) of 30-Jul-2026 that reported the second quarter and disclosed the pending sale of Pizza Hut. Earnings are normalized by excluding special items (charges from the Pizza Hut strategic review, headquarters consolidation, resource optimization, and above all the non-recurring tax benefit of US$359 million associated with the announced sale of Pizza Hut, which would have artificially inflated the quarter's GAAP earnings). The sale of Pizza Hut in mainland China to Yum China closed on August 7, 2026 for US$1,200 million in cash (8-K): the model, anchored at June 30, 2026, does not incorporate that cash in the bridge nor the Pizza Hut China royalty that is no longer collected, and the same holds for the business outside China until it closes. Share repurchases are material (~2%/year) and are modeled with an explicit share reduction by scenario, with no cash accumulation (free cash flow is distributed almost entirely via dividends and buybacks).

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $190 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $147, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $190 in 5 years plus $18 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $169. Against the current market price ($147), the margin of safety is 12.9% (trades below the maximum → there is margin) and the total return at that price would be 7.6% annually.

• Entry multiple. Near the ceiling of the 18-24× band of its archetype.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (106%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Cash generation. TTM OCF ~US$2,083 million on reduced deployed capital; solid cash conversion.
• Earnings persistence. The quarter included a non-recurring US$359 million tax benefit tied to the Pizza Hut sale, already excluded from normalized earnings used in valuation.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

Yum!'s growth reads as units times system sales per unit, plus migration to digital channels (already over 60% of sales excluding Pizza Hut via Byte by Yum!). H1 2026 accounting revenue grew faster than system sales due to buyback of previously franchised restaurants (Germany, Taco Bell southeast U.S.), which converts royalties into company-operated sales without expanding earnings proportionally—a level effect, not a change in organic trend.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• System sales ex-FX. +5% consolidated in Q2 2026, +7% excluding Pizza Hut.
• Pizza Hut. Same-store sales -1%, operating income -12% to -14% year-over-year while its sale is pending.

• Asset-light franchise model. 97% of units franchised; expansion capital deployed by franchisee.
• Brand diversification. Four brands with distinct recent dynamics; Pizza Hut in divestment.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net cash $0 bn
• !Interest coverage (EBIT / interest)5.4x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 106% of ROIC
• ✓Value creation (ROIC − 10% bar)+41pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 1.7x
• ✓Float / working capitalFrees up cash $0.1 bn (float / negative WC)
• ✓Dilution (SBC % of revenue + shares)SBC 0.9% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Leverage. Negative equity; total debt ~US$11,964 million. Structural in mature sector franchisors, not a new stress signal.

How cash comes in and how it is deployed. In green, the business's own cash (the owner-FCF it generates and reinvests); in gray, the float and credit — customer and funding money, which is not the shareholder's.

Over the trailing twelve months (to Jun 2026), Yum! distributed ~81% of operating cash flow between dividends (39%) and share buyback (42%), reinvesting the remaining 19% in capex; no material recurring M&A (the one-time buyback of franchised restaurants in Germany and Taco Bell southeast U.S. was a 2024-2025 event, not an ongoing capital allocation). In H1 2026 buyback ($674M) plus dividends ($413M) exceeded net operating cash flow minus capex (~$748M); the difference was covered partly by a net draw on the revolving credit line ($375M), evidence that return-of-capital funding is not solely from company cash flow.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Capital allocation. Prioritizes dividend and buyback; Pizza Hut sale is the most relevant strategic decision of the year.
• Transaction transparency. The July 30, 2026 announcement does not disclose consideration or closing date for the Pizza Hut sale.

• Missing buyers / transaction uncertainty: the pending Pizza Hut sale, without disclosed consideration or closing, leaves one piece of the business in limbo that the market discounts until it has certainty on terms.
• Near-term Pizza Hut noise: negative same-store sales and declining operating income in the division being sold may weigh more on the consolidated than it will once the transaction is closed.

The price of $147 already reflects a reasonable premium within the archetype band (entry multiple 23×, near the 18-24× band ceiling): there is no large, clear perception-reality gap. The stock's decline is moderate and consistent with the ordinary uncertainty of an ongoing corporate transaction, not a broken business.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at +1%/year (+8% total): the margin of safety protects the downside. The bull (+13%/year, +84% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Pizza Hut sale closing. Without disclosed consideration or closing date; the primary item to watch.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: wide moat, eroding.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 5% at a multiple/growth of 4.7 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 7% (EBIT/EV) + ROIC 51% → brushes the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts 1% vs our 5%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -1%/yr, bull-scenario ceiling +11%/yr over 5y → capital protected, asymmetry in your favor.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, eroding; sources: intangibles, efficient scale, switching costs, network effects, cost advantage → partially passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting 1%, within what we project (5%) — the story squares with the numbers.