Yum Brands Inc. (YUM) shares rallied over 4.0% in after-hours trading to $85.96 after reporting a strong first quarter. Profit came in at $0.95 a share, much higher than the analysts’ estimates of $0.83. Revenue fell 0.1% to $2.62 billion, a slight miss from the eyed $2.66 billion target. All segments had higher same store sales growth, with China’s comparable-store sales leading the way with a 6.0% gain.
The key driver for the rally was the raised guidance and confirmation that the company was still on track to spin off its China unit by year end. The Louisville, Kentucky based company increased their outlook for Core Operating Profit from 10% to 12%.
Price action on the YUM daily chart shows that at the close price formed a golden cross. A golden cross is a bullish indicator that is confirmed when the 50-day SMA crosses over the 200-day SMA. This longer-term indicator could suggest YUM prices may see further upside if we see stronger trading volume over the rest of the trading week. The initial move following the earnings release appears to take price out above the tight range that has been in place for most of the month of April. If we continue to see bullishness, further upside may target the $89.20, which is the 78.6 Fibonacci retracement of the $95.90 high to $64.58 low move. If bullish momentum stalls, major support will come from the 200-day SMA which currently trades around the $76.83 level.
The Trade: Buy YUM at $85.10, with a stop loss at $83.10 and a take profit at $89.10. The Risk/Reward Ratio is 1:2