Macquarie Increases Yum China Price Target Amid Positive Delivery Outlook

Price Target Increase#

Macquarie has raised its price target for Yum China Holdings to $56.00, up from a previously undisclosed level. This adjustment comes while maintaining an Outperform rating on the stock. Currently, Yum China's stock is trading around $48.69, which is below the Fair Value estimate of $62.73, indicating that the stock may be undervalued.

Sales Growth Expectations#

The firm expects improved same-store sales growth in the second quarter of 2026. In the first quarter of 2026, Yum China reported a 10% increase in revenue compared to the previous year, or a 4% increase when excluding foreign exchange impacts. However, same-store sales growth was flat overall, with KFC showing a 1% increase and Pizza Hut experiencing a 1% decline. Macquarie noted that competition in the delivery sector is easing, which could lead to better performance in the upcoming quarter.

Financial Performance#

Yum China's restaurant margin decreased by 0.4 percentage points year-over-year to 18.2%, primarily due to higher costs associated with delivery services. KFC's margin fell by 0.7 percentage points, while Pizza Hut's margin improved by 0.6 percentage points. The company's core operating profit grew by 6% year-over-year, and its return on equity stands at 17%. Management has also been actively buying back shares, which is a strategy to enhance shareholder value.

Expansion Plans#

Yum China has raised its target for K PRO openings to 600 locations by the end of 2026, up from a previous goal of 400. Additionally, the company aims to establish 5,000 K Coffee stores by the end of 2027. As of the first quarter, K Coffee and KPRO have been introduced in over 2,600 and 280 KFC locations, respectively, contributing to mid-single-digit and approximately 20% sales increases for the parent KFC stores.

In related news, Yum China reported first-quarter earnings that exceeded expectations, with earnings per share of $0.87 and revenue of $3.27 billion, both surpassing forecasts. Jefferies also raised its price target for Yum China to $64.50, citing improved operating margins, particularly from Pizza Hut.