Critical Survey: Yum China (YUMC) versus Zoe’s Kitchen (ZOES)

Yum China (NYSE:YUMC) and Zoe’s Kitchen (NYSE:ZOES) are both retail/wholesale companies, but which is the better stock? We will contrast the two businesses based on the strength of their dividends, institutional ownership, valuation, earnings, analyst recommendations, profitability and risk.

Analyst Recommendations

This is a summary of recent ratings for Yum China and Zoe’s Kitchen, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Yum China 1 3 3 0 2.29
Zoe’s Kitchen 1 6 0 0 1.86

Yum China currently has a consensus target price of $45.53, indicating a potential upside of 36.86%. Zoe’s Kitchen has a consensus target price of $12.46, indicating a potential downside of 2.06%. Given Yum China’s stronger consensus rating and higher possible upside, research analysts clearly believe Yum China is more favorable than Zoe’s Kitchen.

Profitability

This table compares Yum China and Zoe’s Kitchen’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Yum China 6.45% 20.94% 13.80%
Zoe’s Kitchen -7.50% -5.77% -3.07%

Insider and Institutional Ownership

82.6% of Yum China shares are owned by institutional investors. Comparatively, 83.6% of Zoe’s Kitchen shares are owned by institutional investors. 0.4% of Yum China shares are owned by company insiders. Comparatively, 4.0% of Zoe’s Kitchen shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a company will outperform the market over the long term.

Valuation & Earnings

This table compares Yum China and Zoe’s Kitchen’s top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Yum China $7.14 billion 1.78 $403.00 million $1.42 23.43
Zoe’s Kitchen $314.10 million 0.79 -$1.99 million ($0.10) -127.20

Yum China has higher revenue and earnings than Zoe’s Kitchen. Zoe’s Kitchen is trading at a lower price-to-earnings ratio than Yum China, indicating that it is currently the more affordable of the two stocks.

Volatility and Risk

Yum China has a beta of 1.12, indicating that its stock price is 12% more volatile than the S&P 500. Comparatively, Zoe’s Kitchen has a beta of 0.39, indicating that its stock price is 61% less volatile than the S&P 500.

Dividends

Yum China pays an annual dividend of $0.40 per share and has a dividend yield of 1.2%. Zoe’s Kitchen does not pay a dividend. Yum China pays out 28.2% of its earnings in the form of a dividend.

Summary

Yum China beats Zoe’s Kitchen on 13 of the 16 factors compared between the two stocks.

About Yum China

Yum China Holdings, Inc. owns, operates, and franchises restaurants in China. The company operates in two segments, KFC and Pizza Hut. It operates restaurants under the KFC, Pizza Hut, Taco Bell, East Dawning, and Little Sheep brands, which specialize in chicken, pizza, hot pot cooking, Chinese food, and Mexican-style food categories. The company also provides online food delivery services. As of December 31, 2017, it operated approximately 5,400 KFC restaurants; 2,100 Pizza Hut restaurants; 280 Little Sheep units; 10 East Dawning restaurants; and 3 Taco Bell restaurants. Yum China Holdings, Inc. was incorporated in 2016 and is headquartered in Shanghai, the People's Republic of China.

About Zoe’s Kitchen

Zoe's Kitchen, Inc., through its subsidiaries, develops and operates a chain of fast-casual restaurants. It operates a range of restaurant formats, including in-line, end-cap, and free-standing restaurants. As of February 22, 2018, the company operated owned and franchised 249 restaurants in 20 states of the United States. Zoe's Kitchen, Inc. was founded in 1995 and is based in Plano, Texas.

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