$YUM $YUM! Janney Analyst Thinks YUM Brands Should Set Taco Bell Free

Janney analyst Mark Kalikowsky is quite bullish on Taco Bell and recently raised his same store estimates for Taco Bell by four (4) percentage points. More interesting for us here is the fact that Mr. Kalikowsky also reiterated his thoughts that the chain should be spun off from its more globally focused parent, Yum Brands (YUM), which itself was spun off from Pepsi (PEP) back in 1997. Basically, his argument is that Taco Bell generates almost all of its profit domestically, while the parent organization is more focused on its more global brands, Pizza Hut and KFC. Taco Bell only accounts for approximately 20% of YUM’s total operating profit and a spinoff would be the most tax efficient way to separate the two distinct businesses. Growth in YUM’s China business is really slowing and has faced numerous headwinds so another possible reason for the spinoff could be to separate the diverging geographic results.

It’s worth noting that others have advocated for a restructuring or possible spinoff of YUM’s China operations. Despite the challenges, China still accounts for half of its revenue and a sizable portion of its operating profit. It also grabs much of management’s and analysts’ attention. Some have floated the idea of a partial spinoff or listing of its China business on a Chinese exchange or accelerating the refranchising process there. The company still owns a lot of its restaurants there so one way to limit its exposure or limit the volatility would be to increase the number of franchises..

Certainly this is an interesting one to watch, but nothing going on here right now. The restaurant business has been a fertile ground for spinoffs though, including some very successful ones such as Carrol’s (TAST)/Fiesta Restaurant (FRGI) and of course Chipotle (CMG). There are even rumors floating around about a Qdoba spinoff from Jack in the Box (JACK). Given all of that, it wouldn’t be so surprising if something ended up emerging.

Disclosure: Author holds no position in any stock mentioned.