YUMC - Yum Brands' Mostly Franchised Business Model May Be Well-Positioned For Elevated Inflation

• What we like most about Yum! Brands, particularly in an inflationary environment, is that ~98% of its restaurants are operated by franchisees or under license agreements.
• Nearly six years ago, Yum! Brands spun off its China business to Yum China Holdings, and it collects a fee of 3% of system sales on that business, too.
• It's simply hard not to like the franchisee business model, and Yum! Brands has worked hard to optimize and de-risk its business by acting more like a toll-road operator.
• At the time of this writing, Yum! Brands sports a dividend yield of ~2%, and we view its net debt position as the primary risk to future dividend expansion.
• Our fair value estimate for Yum! Brands stands at $103 per share, slightly lower than the mid-$110s that the firm's equity is trading. We think shares are about fairly valued.

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