Yum! Brands, Inc. (YUM)

JakilaTheHun (99.95) Submitted: 6/17/2009 1:07:50 PM : Start Price: $34.11 YUM Score: +7.36

Despite some positive catalysts for Yum, such as the Colonel's (i.e. KFC's) new grilled chicken, this is looking overvalued to me at the moment. Yum's balance sheet is propped up by a large amount of goodwill and intangibles. After discounting the goodwill, Yum has negative equity.

For the most recent fiscal year, YUM had net income of $961 million and free cash flows of $586 million. Even if I use a $1 billion figure for a discounted cash flow analysis with a 3% constant growth rate, I still end up with a price around the $29 - $33 range. The stock is currently selling at $34. I'm not sure if this is a terrific short, but it does seem like a good underperform pick at the current price levels since the market as a whole is somewhat undervalued and YUM is somewhat overvalued.

Btw, there also seems to be an extraordinarily large amount of insider sells on YUM recently. That would be the thing that tipped me over the edge on going with the red thumb.