Yum Brands Inc. has been upgraded to neutral from underperform at Credit Suisse, but the price target has been lowered to $75 from $86. Yum, which owns KFC, Pizza Hut and Taco Bell, announced earnings on Tuesday that missed estimates due to troubles in its Chinese business. “The tone of YUM’s conference call, as well as our conversations with investors, suggests the pressure to spin off China (or take other strategic action) will only increase following the dramatic third-quarter miss. We now put a higher probability on this scenario,” Credit Suisse wrote in a note. The firm has updated its theoretical separation model, with a key assumption that the China segment will be converted to a license business paying Yum a 3% royalty. But Credit Suisse hesitated to move to outperform because analysts believe Yum is focused on maintaining its current structure rather than separating the businesses. “While major change will likely occur eventually given building shareholder pressure, a definitive answer here could be months away,” the note said. Yum stock is down 17.4% for the week so far. The S&P is up 2.2% for the same period.
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