Comparing Yum China (YUMC) & Sonic (SONC)

Yum China (NYSE: YUMC) and Sonic (NASDAQ:SONC) are both quick service restaurants companies, but which is the better stock? We will compare the two companies based on the strength of their institutional ownership, analyst recommendations, valuation, profitability, dividends, earnings and risk.

Dividends

Sonic pays an annual dividend of $0.64 per share and has a dividend yield of 2.5%. Yum China does not pay a dividend. Sonic pays out 43.5% of its earnings in the form of a dividend.

Valuation & Earnings

This table compares Yum China and Sonic’s revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Yum China $6.75 billion 2.32 $502.00 million $1.51 27.04
Sonic $477.27 million 2.15 $63.66 million $1.47 17.36

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

Profitability

This table compares Yum China and Sonic’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Yum China 8.43% 21.35% 14.21%
Sonic 13.34% -33.92% 9.64%

Analyst Ratings

This is a summary of recent recommendations and price targets for Yum China and Sonic, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Yum China 0 3 8 0 2.73
Sonic 1 6 5 0 2.33

Yum China currently has a consensus target price of $44.41, suggesting a potential upside of 8.77%. Sonic has a consensus target price of $27.82, suggesting a potential upside of 9.01%. Given Sonic’s higher probable upside, analysts clearly believe Sonic is more favorable than Yum China.

Insider and Institutional Ownership

86.5% of Yum China shares are held by institutional investors. 0.2% of Yum China shares are held by company insiders. Comparatively, 6.2% of Sonic shares are held by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock will outperform the market over the long term.

Summary

Yum China beats Sonic on 11 of the 15 factors compared between the two stocks.

Yum China Company Profile

Yum China Holdings, Inc. is a restaurant company. The Company’s segments include KFC, Pizza Hut Casual Dining, and All Other Segments, including Pizza Hut Home Service, East Dawning, Little Sheep and Taco Bell. As of December 31, 2016, the Company had over 7,500 restaurants in China. Its restaurant base consists of various restaurant concepts. The Company’s restaurants in each of its concept offer consumers the ability to dine in and/or carry out food. In addition, KFC, Pizza Hut Casual Dining, Pizza Hut Home Service and East Dawning offer delivery service. KFC is the quick-service restaurant (QSR) brand. Pizza Hut Casual Dining is the casual dining restaurant (CDR) brand. As of December 31, 2016, the Company had over 360 Pizza Hut Home Service units in over 50 cities in China. The Little Sheep concept specializes in Hot Pot cooking. East Dawning is a Chinese food QSR brand. Taco Bell is a QSR brand specializing in Mexican-style food.

Sonic Company Profile

Sonic Corp. operates and franchises the chain of drive-thru restaurants (Sonic Drive-Ins) in the United States. As of August 31, 2016, 3,557 Sonic Drive-Ins were in operation from coast to coast in 45 states, consisting of 345 Company drive-thrus and 3,212 franchise drive-thrus. As of August 31, 2016, its restaurant design and construction consisted of a kitchen housed in a one-story building, which was approximately 1,500 square feet, flanked by canopy-covered rows of 16 to 24 parking spaces, with each space having its own payment terminal, intercom speaker system and menu board. At a Sonic Drive-In, a customer drives into one of the parking spaces, orders through the intercom speaker system and has the food delivered by a carhop and Sonic Drive-Ins also include a drive-thru lane and patio seating to provide customers with alternative dining options. Its food items include specialty drinks, such as cherry limeades and slushes, ice cream desserts and chicken sandwiches and hamburgers.

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