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Sunday, 05/27/2001

YUM - Tricon Global Restaurants

Company Description

KFC is based in Louisville, Kentucky; Pizza Hut and Tricon Restaurants International are headquartered in Dallas, Texas; and Taco Bell is based in Irvine, California.

Each of Tricon's four operating divisions is engaged in the operation, development, franchising and licensing of a system of both traditional and non-traditional QSR units. Non-traditional units include express units and kiosks which have a more limited menu and operate in non-traditional locations like airports, gas and convenience stores, stadiums, amusements parks and colleges, where a full-scale traditional outlet would not be practical or efficient. In addition, there are approximately 367 units housing more than one concept. Of these, approximately 354 units offer both the full KFC menu and a limited menu of Taco Bell products, and approximately 13 units offer both the full KFC menu and a limited menu of Pizza Hut products.

In each concept, consumers can either dine in or carry out food. In addition, Taco Bell and KFC offer a drive-through option in many stores. Pizza Hut and, on a much more limited basis, KFC offer delivery service.

Each concept has proprietary menu items and emphasizes the preparation of food with high quality ingredients as well as unique recipes and special seasonings to provide appealing, tasty and attractive food at competitive prices.

(source: Tricon)

Reasons To Invest

It may have been famed investor Peter Lynch who said, "Invest in what you know." And for many Americans and, in fact, consumers worldwide, it's hard not to know Tricon's global brands. While the company's corporate name may be unfamiliar to some, its brands such as KFC, Pizza Hut and Taco Bell should be very familiar to those who partake of fast food.

Tricon is the #2 restaurant in the United States, behind rival McDonalds (NYSE:MCD). The company and its shares have performed relatively well during the economic downturn, which has afflicted so many other industries and innumerable companies. There are several factors that lend to Tricon's out performance in terms of both share price appreciation and improvement in underlying fundamentals.

For starters, it doesn't seem likely that consumers would limit their purchases of sub-$1 food products. After all, you can pick up a taco at Taco Bell for a mere $0.59. If anything, the company would benefit from the slowdown in that consumers would be more likely to buy a cheaper fast food meal than dish out more cash at a higher-end restaurant.

In addition, Tricon has employed several effective advertising campaigns recently. And judging by recent same-store-sales figures, the ads are more than working. For example, at its Pizza Hut chains, Tricon has embarked on a campaign to advertise its new extra-cheesy Stuffed Crust and Twisted Crust pizza offerings. And at its Taco Bell establishments, Tricon has extensively advertised its Chalupa and new Grilled Stuft Burrito. As far as DripAdvisor is concerned, the new Stuft Burritos are quite delectable.

Astute investors may point to the recent advance in shares of Tricon and the fact that the stock is hovering near a 52-week high. After all, the point is to buy cheap and sell dear. But it may also be pertinent to point out the fact that despite their recent rise, shares of Tricon trade with a modest valuation, especially after taking into account the company's expected earnings growth rate. Tricon is expected to blossom its bottom-line by roughly 15 percent over the next five years. While not the break-neck growth delivered by higher beta names in the technology space, Tricon's steady delivery of solid financial performance should reward investors over a long period of time. And prove to be a valuable means of diversifying risk away from positions that are more susceptible to the ebbs and flows of the global economy and capital markets.

Finally, although Tricon DOES NOT pay a dividend to its shareholders, the company does offer investors a means of purchasing shares directly. Unlike many companies, Tricon does not charge any fees for this service.

DRIP Information:

Shares to Qualify = 1            Accept Foreign Accounts: Yes
Auto-reinvestment  = Yes         Temper Enrollment Serv:  Yes

Min/Max Investment = $20 to $5,000/month
Reinvestment Fees: 
Dividend: 0          Cash: 0           Auto ReInvest: 0

Transfer Agent:

Boston Eq.

1-888-439-4986


Industry Group:     Restaurants  52-week high=$45.29
Annual Dividend Per Share=$0.00  52-week low =$23.56
Last earnings 05/01   est= 0.59  actual= 0.59
Next earnings 08-01   est= 0.72  versus= 0.76
                                 P/E = 17
Analyst Ratings:
Strong Buy    = 3
Moderate Buy  = 3
Hold          = 6
Moderate Sell = 0
Strong Sell   = 0

 
 

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