YUMC

We rate Yum China Holdings, Inc. (YUMC) as a Hold with a composite score of 60.0/100 at a current price of $56.01. The stock presents a mixed quantitative picture — neither compelling enough to warrant new accumulation nor weak enough to justify selling for existing holders. Our factors are split, and the overall profile suggests patience is warranted.

The rating is primarily driven by strength in stability (79th percentile) and value (79th percentile), which together account for the majority of the composite score. Offsetting weakness in investment (28th percentile) and quality (52th percentile) tempers our overall conviction. We assign a Narrow Moat rating (46/100), Low uncertainty, and Standard capital allocation.

Key items to watch: quarterly earnings execution and sector-level competitive dynamics. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

Yum China Holdings, Inc. holds a mid-tier position (#37 of 50) within the Retail Trade sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 60.0/100 places it at rank #692 in our full 7,333-stock universe. With a $15.8B market capitalization, Yum China Holdings, Inc. operates at meaningful scale within the Retail Trade sector, providing competitive advantages in distribution, procurement, and customer reach.

The near-term outlook is constructive, with revenue growing at 20% and momentum in the 66th percentile confirming positive market sentiment and institutional accumulation. The combination of strong top-line growth and favorable price dynamics suggests the company is executing well on its growth strategy. Investment factor at the 28th percentile indicates reinvestment patterns that investors should monitor for sustainability.

The margin cascade tells an important story: gross margins of 23% (-13.2pp vs sector) narrow to operating margins of 12% (+8.3pp vs sector) and net margins of 9.7%, yielding a gross-to-net conversion rate of 42%. This efficient conversion suggests well-controlled operating costs and limited margin leakage between the gross and net levels.

At a current price of $56.01, Yum China Holdings, Inc. appears undervalued relative to its fundamentals. Our value factor score of 79/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. The stock screens as attractively priced on a majority of these measures, suggesting the market may be underappreciating the underlying fundamentals.

The stock currently trades at a P/E of 16.2x (a 24% discount to the sector median of 21.4x), EV/EBITDA of 12.8x (at a premium), P/B of 3.0x, P/S of 1.6x. The below-sector P/E suggests possible undervaluation or the market pricing in near-term headwinds.

We assign a Low uncertainty rating to Yum China Holdings, Inc.. The company exhibits strong financial stability with a beta of 0.61, and a stability factor in the 79th percentile. The predictable nature of the business model and solid financial position reduce the range of potential outcomes, giving us confidence in our fair value estimate.

Specific risk factors that inform our assessment include: low beta of 0.61 — while defensive, this may indicate limited upside participation in bull markets. Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 79th percentile and quality factor at the 52th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: above-average stability (79th percentile) suggests predictable business dynamics; a 2.05% dividend yield anchors total return. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate Yum China Holdings, Inc.'s capital allocation as Standard. Management has shown adequate — though not exceptional — stewardship of shareholder capital. Returns on equity stand at 18.3%, and the balance sheet is managed within acceptable parameters (D/E: 73%). Exemplary allocators typically sustain ROE above 20% and D/E below 50%; Yum China Holdings, Inc. falls short on at least one dimension.

There is room for improvement in optimizing the capital structure or enhancing shareholder returns. The 2.05% dividend yield provides some income return, but the overall capital allocation framework would benefit from either higher reinvestment returns, improved balance sheet efficiency, or increased shareholder distributions. We will monitor for signs of strategic improvement that could warrant an upgrade.

In summary, Yum China Holdings, Inc. receives a Hold rating with a composite score of 60.0/100 (rank #692 of 7,333). Our quantitative framework assigns a Narrow Moat (46/100, trend: stable), Low uncertainty, and Standard capital allocation. The average factor score across quality, value, momentum, stability, and investment is 61/100.

Our analysis supports a neutral stance on Yum China Holdings, Inc.. While the quantitative profile is not weak enough to warrant selling, it lacks the multi-factor strength required for a buy recommendation. Existing holders should maintain positions and monitor for catalysts — either fundamental improvement or valuation compression — that would shift the risk-reward balance.