Stock Analysis on Net

YUM! Brands Inc. (NYSE:YUM)

This company has been moved to the archive! The financial data has not been updated since October 11, 2016.

Present Value of Free Cash Flow to the Firm (FCFF)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.


Intrinsic Stock Value (Valuation Summary)

YUM! Brands Inc., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 10.14%
01 FCFF0 1,250
1 FCFF1 1,404 = 1,250 × (1 + 12.30%) 1,275
2 FCFF2 1,556 = 1,404 × (1 + 10.85%) 1,283
3 FCFF3 1,702 = 1,556 × (1 + 9.39%) 1,274
4 FCFF4 1,837 = 1,702 × (1 + 7.93%) 1,248
5 FCFF5 1,956 = 1,837 × (1 + 6.47%) 1,207
5 Terminal value (TV5) 56,729 = 1,956 × (1 + 6.47%) ÷ (10.14%6.47%) 35,006
Intrinsic value of YUM! Brands Inc. capital 41,293
Less: Debt obligations, including capital leases (fair value) 3,869
Intrinsic value of YUM! Brands Inc. common stock 37,424
 
Intrinsic value of YUM! Brands Inc. common stock (per share) $101.97
Current share price $88.25

Based on: 10-K (reporting date: 2015-12-26).

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Weighted Average Cost of Capital (WACC)

YUM! Brands Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 32,388 0.89 10.87%
Debt obligations, including capital leases (fair value) 3,869 0.11 4.01% = 5.45% × (1 – 26.34%)

Based on: 10-K (reporting date: 2015-12-26).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 367,005,511 × $88.25
= $32,388,236,345.75

   Debt obligations, including capital leases (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (27.30% + 28.50% + 31.40% + 25.00% + 19.50%) ÷ 5
= 26.34%

WACC = 10.14%


FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

YUM! Brands Inc., PRAT model

Microsoft Excel
Average Dec 26, 2015 Dec 27, 2014 Dec 28, 2013 Dec 29, 2012 Dec 31, 2011
Selected Financial Data (US$ in millions)
Interest expense 155 152 270 169 184
Net income, YUM! Brands, Inc. 1,293 1,051 1,091 1,597 1,319
 
Effective income tax rate (EITR)1 27.30% 28.50% 31.40% 25.00% 19.50%
 
Interest expense, after tax2 113 109 185 127 148
Add: Dividends declared 756 691 635 569 501
Interest expense (after tax) and dividends 869 800 820 696 649
 
EBIT(1 – EITR)3 1,406 1,160 1,276 1,724 1,467
 
Short-term borrowings 923 267 71 10 320
Long-term debt 3,054 3,077 2,918 2,932 2,997
Shareholders’ equity, YUM! Brands, Inc. 911 1,547 2,166 2,154 1,823
Total capital 4,888 4,891 5,155 5,096 5,140
Financial Ratios
Retention rate (RR)4 0.38 0.31 0.36 0.60 0.56
Return on invested capital (ROIC)5 28.76% 23.71% 24.76% 33.83% 28.54%
Averages
RR 0.44
ROIC 27.92%
 
FCFF growth rate (g)6 12.30%

Based on: 10-K (reporting date: 2015-12-26), 10-K (reporting date: 2014-12-27), 10-K (reporting date: 2013-12-28), 10-K (reporting date: 2012-12-29), 10-K (reporting date: 2011-12-31).

1 See details »

2015 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 155 × (1 – 27.30%)
= 113

3 EBIT(1 – EITR) = Net income, YUM! Brands, Inc. + Interest expense, after tax
= 1,293 + 113
= 1,406

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [1,406869] ÷ 1,406
= 0.38

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 1,406 ÷ 4,888
= 28.76%

6 g = RR × ROIC
= 0.44 × 27.92%
= 12.30%


FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (36,257 × 10.14%1,250) ÷ (36,257 + 1,250)
= 6.47%

where:

Total capital, fair value0 = current fair value of YUM! Brands Inc. debt and equity (US$ in millions)
FCFF0 = the last year YUM! Brands Inc. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of YUM! Brands Inc. capital


FCFF growth rate (g) forecast

YUM! Brands Inc., H-model

Microsoft Excel
Year Value gt
1 g1 12.30%
2 g2 10.85%
3 g3 9.39%
4 g4 7.93%
5 and thereafter g5 6.47%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 12.30% + (6.47%12.30%) × (2 – 1) ÷ (5 – 1)
= 10.85%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 12.30% + (6.47%12.30%) × (3 – 1) ÷ (5 – 1)
= 9.39%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 12.30% + (6.47%12.30%) × (4 – 1) ÷ (5 – 1)
= 7.93%