YUM Analysis: Yum! Brands Trades Within 1% of Its 52-Week High as the KFC-Taco Bell-Pizza Hut Franchise Empire Prints $1.6 Billion in Free Cash Flow

YUM trades at a trailing P/E of 29.38 based on its full-year 2025 EPS of $5.56. That's a premium to the S&P 500's roughly 22x multiple, but not unusual for asset-light franchise businesses that convert a large share of revenue into cash. For context, McDonald's typically trades at 25-28x and Chipotle at 50x+, placing YUM squarely in the middle of the QSR valuation spectrum.

The EV/EBITDA picture is more stretched. At 65.7x on a trailing quarterly basis (Q4 2025), YUM looks expensive — though this figure is inflated by annualizing a single quarter's EBITDA. Looking at analyst estimates for 2028, YUM is expected to earn approximately $8.32 per share (summing quarterly estimates of $1.75, $1.97, $2.11, and $2.49), which implies a forward P/E of roughly 19.6x on 2028 numbers — far more reasonable and suggesting a 14% EPS CAGR from fiscal 2025 through 2028.

The earnings yield of 1.27% (Q4 annualized) sits below the risk-free rate, which is typical for high-quality compounders where investors are paying for growth durability rather than current yield. The price-to-sales ratio of 16.7x reflects YUM's franchise economics — the company collects high-margin royalties rather than operating restaurants directly, so revenue is lower but far more profitable per dollar.

YUM's fiscal 2025 tells a story of accelerating momentum. Revenue climbed each quarter, from $1.79 billion in Q1 to $1.93 billion in Q2, $1.98 billion in Q3, and a robust $2.51 billion in Q4. The full-year total of approximately $8.21 billion drove net income of $1.56 billion, up from $1.49 billion in fiscal 2024 — a 4.9% increase.

Q4 stood out in particular. Revenue of $2.51 billion was 27% higher than Q3, reflecting strong holiday-season sales and potentially the impact of new unit openings across KFC and Taco Bell's international markets. Gross profit of $1.12 billion represented a 44.5% gross margin, while operating income of $738 million translated to a 29.4% operating margin. The quarter's $1.92 diluted EPS was the highest of any quarter in fiscal 2025.

Margin trajectory has been notable across the year. Operating margins ranged from 29.4% to 33.6%, with Q3's 33.6% representing the peak. The Q4 dip to 29.4% was partly driven by higher G&A expenses ($377 million vs. $282 million in Q3), likely reflecting year-end compensation accruals and investment in digital infrastructure. Full-year EBITDA of approximately $2.79 billion (summing quarterly figures) demonstrates the consistent profitability of YUM's franchise model.

YUM's financial health is a tale of two metrics. On the cash flow side, the company is a machine. Fiscal 2025 operating cash flow hit $2.01 billion, up 19% from $1.69 billion in 2024. After $371 million in capital expenditures, free cash flow reached $1.64 billion — a 14.5% year-over-year increase and comfortably ahead of 2023's $1.32 billion and 2022's $1.15 billion.

The company returned $1.34 billion to shareholders in fiscal 2025 through $789 million in dividends and $552 million in share repurchases. The dividend payout ratio was roughly 48% of FCF, leaving ample room for continued buybacks and debt service.

On the balance sheet side, however, YUM carries significant leverage — by design. The company has negative stockholders' equity of approximately $7.3 billion (book value per share of -$26.35), a deliberate result of its aggressive share repurchase program and franchise-model capital allocation. Total debt stands at approximately $12 billion, with interest coverage of 5.5x (operating income / interest expense). While the negative book value looks alarming in isolation, it's standard for franchise-heavy operators like McDonald's and Domino's that have returned more capital than they've retained.

The current ratio of 1.35x provides adequate short-term liquidity, and the company ended fiscal 2025 with $709 million in cash. Net debt to EBITDA of roughly 13.8x (quarterly basis) is elevated but manageable given the predictability of franchise royalty income.

YUM's competitive moat rests on three globally recognized brands — KFC (approximately 30,000 locations worldwide), Taco Bell (~9,000 locations), and Pizza Hut (~18,000 locations) — plus The Habit Burger Grill (~370 locations). The company operates in over 155 countries, with roughly 56,000 system restaurants, making it the world's largest restaurant company by unit count.

The franchise model is central to YUM's investment thesis. Approximately 98% of the system is franchised, meaning YUM collects royalties (typically 5-6% of franchisee sales) and initial franchise fees with minimal capital investment in individual stores. This asset-light approach generates high returns on invested capital — ROIC was 9.7% in Q4 2025 despite the heavily leveraged balance sheet.

Geographic diversification is a key differentiator. While McDonald's derives roughly half its revenue from the U.S., YUM generates the majority of its system sales internationally, with particular strength in emerging markets. The battle for India has become a focal point, with both YUM (through KFC and Pizza Hut) and McDonald's investing heavily in the subcontinent's rapidly growing middle class. Recent news coverage has highlighted the competitive dynamics in India as U.S. same-store sales growth moderates.

Taco Bell remains YUM's fastest-growing brand, with strong U.S. momentum driven by menu innovation and digital ordering. The brand's international expansion — particularly into markets like India, Spain, and the UK — represents a significant runway for unit growth over the next decade.

Analyst consensus points to steady growth for YUM through the remainder of the decade. Based on quarterly estimates aggregated from 8-15 analysts, fiscal 2028 EPS is expected to reach approximately $8.32, representing a compound annual growth rate of roughly 14% from fiscal 2025's $5.56. Revenue estimates for 2028 suggest roughly $10.2 billion annually (summing quarterly estimates), implying mid-single-digit top-line growth supplemented by margin expansion and share buybacks.

On the institutional front, sentiment is mixed. Envestnet Asset Management recently increased its YUM position by 4.5%, adding 11,532 shares during the most recent quarter. However, Cibc World Market cut its holdings by 29.5%, selling 17,106 shares. This divergence is typical for a stock trading near 52-week highs, where some investors take profits while others add on momentum.

Price target data was unavailable from the consensus feed, but the street's EPS trajectory implies meaningful upside if YUM can sustain its current growth rate. At the current $163.33 price, a 20x multiple on 2028's estimated $8.32 EPS would yield a target of approximately $166 — suggesting limited near-term upside from multiple expansion alone, and that growth must be the primary driver of returns.

Key catalysts to watch include: the next earnings report (scheduled for April 29, 2026), progress on Taco Bell's international expansion, same-store sales trends in China (through its former subsidiary Yum China, now a separate public company), and the impact of any new tariff policies on supply chain costs across 155+ countries of operation.

YUM currently yields approximately 0.47% at its current price — modest by income investor standards, but the dividend story is about growth rather than current yield. The company has increased its dividend for over 20 consecutive years, and fiscal 2025's $789 million in total dividend payments represented a meaningful step up from 2024's $752 million (a 4.9% increase).

The payout ratio varies significantly by quarter due to earnings seasonality. Q4's 36.8% payout ratio reflects the quarter's outsized earnings, while Q1's 78.3% reflects the typically weaker first quarter. On a full-year basis, dividends consumed roughly 48% of free cash flow, leaving substantial room for continued increases.

Combined with the $552 million in share repurchases (reducing the share count from 280 million to 278 million during fiscal 2025), YUM's total shareholder return program distributed approximately 82% of free cash flow to investors. This capital return discipline, funded by predictable franchise royalties rather than volatile operating profits, is the core of YUM's appeal to long-term holders.