Time to Get Short YUM Brands

YUM! Brands, Inc (YUM) is a fast food restaurant operating nearly 40,000 stores around the world.  The company’s stock is currently trading around $66.65 in a 52 week range of $59.68-$78.68. The stock had a relatively sideways year with shares only rallying 1.11% over the past 12 months.  The company’s is set to report earnings after the bell today with analysts expecting earnings of $0.80 per share on revenues of $4.3 billion. Historically, the stock is a relatively mixed performer on earnings with shares rallying 4 times and selling off 4 times on earnings day over the past 8 quarters. The stock sees an average earnings day move of 3.9% and the options market is currently implying a move of around 6.5% by this Friday’s expiration. The larger than average expected move might be explained by concerns over an economic slowdown in China, as YUM has large exposure to China. YUM is also trading in bearish territory on a chart with shares trading well below the Ichimoku Cloud and the future cloud sloping downward.  We believe that historical performance in YUM coupled with China concerns signal for a short ahead of earnings. We will be looking to get short YUM via options near the close with a downside price target around $4.30 lower.

Andrew Keene

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