Yum! Brands, Inc.: Carl Icahn’s Top Disciple Could Send YUM Stock Soaring

YUM-Stock-SoaringA Boardroom Shakeup Could Send YUM Stock Skyrocketing

Despite the battering Yum! Brands, Inc. (NYSE:YUM) suffered this year, the company’s future just got a little brighter. YUM stock got huge lift on Friday October 16th after the company added a protégé of Carl Icahn to the board of directors.

Keith Meister founded Corvex Capital, an investment firm with a five percent stake in YUM stock. More importantly, Meister trained under the most renowned activist investor of our time; Carl Icahn. That’s why Yum stockholders are excited he was added to the board. (Source: Yum Brands Adds Icahn Disciple to Board, Wall Street Journal, October 15, 2015.)

Icahn’s history as an investment guru has passed into legend. He’s most famous for buying huge stakes and herding management towards his vision of the firm. It’s an aggressive style but no one can argue with his results.

Even Icahn’s passive picks outperform. When Netflix, Inc. was down in the dumps a few years ago, he loaded up a truck-full of shares. By the time he sold, he made a $2.0 billion profit.

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Meister was Icahn’s lieutenant for years before branching out on his own. Now he’s eager to use his old boss’s techniques to reinvigorate YUM stock.

Yum has had a rough time in China. At first, YUM stock benefited enormously from the opening of KFC and Pizza Hut locations in China, but the division has severely underperformed this year.

In April, Meister proposed a plan to spin off Yum’s China division, claiming it could almost immediately boost Yum stock by nearly 22%.

Carl Icahn Lieutenant Unlocks Upside for Yum Stock

It’s unbelievable how much impact one person can have. Initially, Meister’s criticisms caused YUM stock to fall, probably because he wasn’t in a position to dictate terms. But like I said, Yum’s management have been reviewing their business strategy.

In the most previous quarter, same-store sales for China were between zero and four percent, with Pizza Hut statistics falling into negative territory. Over the course of the year, Yum’s same-store sales are expected to be negative.

Yum stockholders should expect flat growth for the rest of 2015. But that’s not a bad thing, it just means Yum managers are coming to grips with reality. They’ve lowered guidance for the rest of the year and granted a board seat to their biggest critic.

“We are pleased to welcome to the Board one of our largest shareholders, Keith Meister, whose deep financial expertise will be invaluable to us as we conclude our disciplined review of our strategy and structure,” said David Nocak, the executive chairman of Yum.

“The Yum! Board comprises a group of active and engaged directors, and we look forward to benefitting from Keith’s vast experience and his input prior to the conclusion of our review,” (my emphasis). (Source: Yum Brands just got one step closer to breaking itself up, Business Insider, October 16, 2015.)

Yum stock rose more than six percent following the announcement as investors took note of the careful wording. Novak was signalling to Yum investors that their criticisms had traveled up the food chain.

Yum Stock Price Set to Explode

Meister has openly pitched huge reforms for Yum! Brands. Obviously, he’s making those arguments because he owns a ton of Yum stock, but that doesn’t mean he’s wrong.

By closing its China operations, Meister estimates that Yum can boost its number of franchises from 6,500 to 18,000 over the next 10 years. The gains for Yum stockholders could be enormous.

“We have had a constructive dialogue with the Board and management over the last several months,” Meister said about dealing with Yum’s management.

“This is a company with multiple avenues for unlocking significant long-term value, and I look forward to working with the Board and management to expeditiously finalize a plan that we believe can deliver that value to shareholders.”

In corporate raider-speak, the latter half of that quote translates loosely to “I’m going to turn this thing around and make a boat-load of cash doing it.” Carl Icahn taught him well.

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