Tracking the order
flow in YUM brands
We all are aware of YUM brands, the company which own &
operates 3 major fast food chains KFC, Pizza Hut & Taco Bell. If you want to dig more about this company you
should check out the link below
Lately this company has been in news due to slumping sales in
China, which contributes almost 40 % to its operating income. Slowing sales can
potentially be the result of increased health concerns regarding poultry supply
in China and outbreak of Avian flu.
It’s not any analyst report which sparked my attention on YUM,
rather a very huge of option trade which went through yesterday (Nov 15th,
2013) got my attention and made me dig further into it. Part of my home work
before trading this name, involves investigating how much growth market is
expecting in this company’s stock price. Reverse engineering a DCF model revealed,
market is expecting 34.70% growth in operating income over the next 5
years. Price of current assets in place
is only $20.90 and future growth should add $36.50, which puts the enterprise
value close to $57.39. Last closing price I checked up was $73.98 – 29% more
than enterprise value. This seems to align well with discussion
related to expensive multiple for markets which everybody is discussing these
days!! We‘ll see that later
Second leg of my analysis involves technical review of YUM to
understand how it has been behaving lately.
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| Chart from Think or Swim Platform |
Stock has been range bound since April 2012, with 75 ish
being the upper bound and 60’ ish level – lower bound. Long term trend from March 09 lows has been
broken and stock is consolidating and even short term trend from earlier this
year seem to following the same path as well.
Third leg of my analysis (most crucial to me) - How the
implied vol and realized vol have been doing lately. No surprise that with the
stock close to all time highs, implied vol currently is at 22th percentile. 30
day historical vol has ranged between 10.9% & 44.4% for the last 4 years
and currently is at 28.5%. I believe current
30 day realized vol still has the movement from earnings release captured and
should decline shortly as earning move of 7.25% is priced out of it.
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| Chart from LiveVol Pro |
Here’s a snap shot from order flow from Nov 15th
Someone structured a big bearish position on this name or is
trying to hedge an existing stock position by locking in the gains below
65. Order flow raised IV for Dec 65’s by
5 points and Jan 65 ‘by 2 points – creating vol difference between the two
expiries. Dec/ Jan Calendar makes
perfect sense if you feel this stock has
seen it s high for now and is due for a trip south.
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