Yum China Fears Delta Variant's Impact in the Third Quarter

The stock is trading at its lowest level in over seven months this morning

Deputy Editor
Sep 15, 2021 at 10:04 AM
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The shares of Yum China Holdings Inc (NYSE:YUMC) are down 5.9% at $57.60 at last check, following an announcement from the China-based fast-food firm that the Covid-19  delta variant in the region has had a significant effect on the company. Yum China warned that it expects to turn out a lower operating profit for the third quarter, predicting an approximately 50% to 60% year-over-year drop. 

The stock is trading back below its 20-day moving average, which briefly reemerged as support late last month, and is now trading at its lowest level since February. The equity is now testing its footing at its year-to-date breakeven, but sports a roughly 11.5% year-over-year lead. 

Analyst sentiment is still strong. Of the seven in coverage, five call it a "buy" or better, while the 12-month consensus price target of $71.42 is a 16.7% premium to last night's close. 

Short interest has been falling off rapidly, down almost 40% in the last two reporting periods. The 10.59 million shares sold short make up 2.6% of the stock's available float, or over a week of pent-up buying power. 

Options traders have been clinging to bearish bets, however. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), YUMC sports a 10-day put/call volume ratio of 1.51, which stands higher than 80% of readings from the past year. This implies calls are more popular than usual. 

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