Contrasting Yum! Brands (NYSE:YUM) & Starbucks (NASDAQ:SBUX)

Starbucks (NASDAQ:SBUX) and Yum! Brands (NYSE:YUM) are both large-cap retail/wholesale companies, but which is the superior investment? We will contrast the two businesses based on the strength of their risk, valuation, institutional ownership, earnings, dividends, analyst recommendations and profitability.

Risk and Volatility

Starbucks has a beta of 1.02, indicating that its share price is 2% more volatile than the S&P 500. Comparatively, Yum! Brands has a beta of 0.73, indicating that its share price is 27% less volatile than the S&P 500.

Dividends

Starbucks pays an annual dividend of $2.48 per share and has a dividend yield of 3.0%. Yum! Brands pays an annual dividend of $2.84 per share and has a dividend yield of 1.9%. Starbucks pays out 151.2% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Yum! Brands pays out 55.4% of its earnings in the form of a dividend. Starbucks has raised its dividend for 15 consecutive years and Yum! Brands has raised its dividend for 8 consecutive years. Starbucks is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Insider & Institutional Ownership

72.3% of Starbucks shares are owned by institutional investors. Comparatively, 82.4% of Yum! Brands shares are owned by institutional investors. 0.1% of Starbucks shares are owned by insiders. Comparatively, 0.3% of Yum! Brands shares are owned by insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company is poised for long-term growth.

Profitability

This table compares Starbucks and Yum! Brands’ net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Starbucks	4.99%	-31.84%	7.46%
Yum! Brands	18.11%	-21.01%	24.18%

Analyst Ratings

This is a summary of recent recommendations for Starbucks and Yum! Brands, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Starbucks	2	11	15	1	2.52
Yum! Brands	0	11	13	0	2.54

Starbucks currently has a consensus price target of $101.44, indicating a potential upside of 21.21%. Yum! Brands has a consensus price target of $167.38, indicating a potential upside of 13.05%. Given Starbucks’ higher probable upside, analysts clearly believe Starbucks is more favorable than Yum! Brands.

Earnings & Valuation

This table compares Starbucks and Yum! Brands”s gross revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Starbucks	$37.18 billion	2.56	$3.76 billion	$1.64	51.03
Yum! Brands	$8.06 billion	5.10	$1.49 billion	$5.13	28.86

Starbucks has higher revenue and earnings than Yum! Brands. Yum! Brands is trading at a lower price-to-earnings ratio than Starbucks, indicating that it is currently the more affordable of the two stocks.

About Starbucks

Starbucks Corporation, together with its subsidiaries, operates as a roaster, marketer, and retailer of coffee worldwide. The company operates through three segments: North America, International, and Channel Development. Its stores offer coffee and tea beverages, roasted whole beans and ground coffees, single serve products, and ready-to-drink beverages; and various food products, such as pastries, breakfast sandwiches, and lunch items. The company also licenses its trademarks through licensed stores, and grocery and foodservice accounts. The company offers its products under the Starbucks Coffee, Teavana, Seattle’s Best Coffee, Ethos, Starbucks Reserve, and Princi brands. Starbucks Corporation was founded in 1971 and is based in Seattle, Washington.

About Yum! Brands

Yum! Brands, Inc., together with its subsidiaries, develops, operates, and franchises quick service restaurants worldwide. The company operates through the KFC Division, the Taco Bell Division, the Pizza Hut Division, and the Habit Burger Grill Division segments. It also operates restaurants under the KFC, Pizza Hut, Taco Bell, and The Habit Burger Grill brands, which specialize in chicken, pizza, made-to-order chargrilled burgers, sandwiches, Mexican-style food categories, and other food products. The company was formerly known as TRICON Global Restaurants, Inc. and changed its name to Yum! Brands, Inc. in May 2002. Yum! Brands, Inc. was incorporated in 1997 and is headquartered in Louisville, Kentucky.