Head to Head Contrast: Sonic (SONC) & Yum China (YUMC)

Sonic (NASDAQ: SONC) and Yum China (NYSE:YUMC) are both retail/wholesale companies, but which is the superior business? We will contrast the two businesses based on the strength of their earnings, risk, valuation, dividends, institutional ownership, profitability and analyst recommendations.

Analyst Recommendations

This is a summary of recent ratings and target prices for Sonic and Yum China, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Sonic 1 5 5 0 2.36
Yum China 0 3 8 0 2.73

Sonic presently has a consensus price target of $27.82, indicating a potential upside of 2.16%. Yum China has a consensus price target of $44.41, indicating a potential upside of 11.13%. Given Yum China’s stronger consensus rating and higher probable upside, analysts plainly believe Yum China is more favorable than Sonic.

Dividends

Sonic pays an annual dividend of $0.64 per share and has a dividend yield of 2.4%. Yum China pays an annual dividend of $0.10 per share and has a dividend yield of 0.3%. Sonic pays out 43.5% of its earnings in the form of a dividend. Yum China pays out 6.6% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years.

Valuation & Earnings

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

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Sonic $477.27 million 2.30 $63.66 million $1.47 18.52
Yum China $6.75 billion 2.27 $502.00 million $1.51 26.46

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

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

Institutional and Insider Ownership

86.6% of Yum China shares are owned by institutional investors. 6.2% of Sonic shares are owned by company insiders. Comparatively, 0.2% of Yum China shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock is poised for long-term growth.

Summary

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

About Sonic

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.

About Yum China

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.

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