JP Morgan downgrades Yum Brands (YUM) to neutral from overweight.
Analyst John Ivankoe says after spending time in China, his initial conclusion on the opportunity for the company's China business did not substantially change to warrant a further increase in the implicit 35 times to 40 times multiple of the company's China business.
He believes China is not a margin improvement story. Lower than average new unit volumes are matched with higher labor costs and partially offset by supply chain leverage.
Ivankoe also notes competition for mid-level management is fierce and considerable additional general and administrative costs are needed to support future unit/market development.