Yum Brands' shares are trading at a discount, making now an opportune time for investors to add the Taco Bell owner to their portfolios, according to Morgan Stanley. The investment bank upgraded the fast food stock to overweight from equal weight. It also raised its price target to $185 from $180, implying 26% upside from Tuesday's close. "We've been more favorably biased toward YUM among franchised fast food, but the shares are flat YTD and don't seem to give full credit for potentially improved growth going forward," analyst Brian Harbour said in a note. "YUM trades below where it should based on growth profile and business features. … It's our preference in the group." The stock currently trades at around 21 times forward earnings, Harbour pointed out. That's below a five-year average. He noted that "the stock warrants a modestly higher multiple given a mostly stronger growth profile compared to the 4 years leading up to the pandemic." The analyst pointed to several catalysts that should boost shares of Yum in the near future. The company plans to replicate its successful marketing and operational strategies for Taco Bell at KFC — a move that could help it access untapped corners of the market and ultimately boost its stock, according to the analyst. He also noted that consumers are increasingly seeking value amid rising energy prices and other macroeconomic uncertainties, which should be a tailwind for Yum due to its large number of inexpensive quick-service restaurants and franchise business models. "Inflation going forward will partly depend on energy prices, but it does seem like part of it will be sticky," Harbour wrote. "Franchise models like YUM are better suited to this environment, so we're making an effort to add this exposure to our OW picks." Morgan Stanley's call goes against consensus on the Street. Of the 29 analysts covering YUM! Brands, just 13 have a buy or strong buy on the stock, LSEG data shows. Shares have edged down 3% in the year to date, underperforming the overall market.
