Companies in the highly competitive and fickle fast-food market are always looking for new ways to grow. Sometimes this involves introducing new products to try to take advantage of changing customer tastes. For instance, yesterday Yum! Brands (symbol YUM on New York) announced that it will reintroduce its KFC “Double Down” sandwich in Canada on June 1.

The Double Down clearly aims to, shall we say, “press the buttons” of those who disapprove of fast food and the North American diet. Instead of bread or a bun, the Double Down uses two slices of breaded, deep-fried chicken filets, stuffed with bacon and processed cheese, and drowned in a “secret sauce.”

Large cap stocks: Yum is a Chinese trailblazer

Another way fast-food firms try to grow is through aggressive expansion into overseas markets. This is an area that Yum has been focusing on for many years. We updated our buy/sell/hold advice on the company in the May 20, 2011 Wall Street Stock Forecaster Hotline. Read on for further details.

Yum operates nearly 38,000 outlets in more than 110 countries. The large cap stock’s major chains include KFC (fried chicken), Pizza Hut and Taco Bell (Mexican food). Yum has announced that it will sell its Long John Silver’s (seafood) and A&W (root beer and hamburgers) chains.

Yum was the first fast-food company to enter China, in 1987. It is now the largest in the country, with nearly 3,300 restaurants. The company continues to aggressively expand in China, particularly its KFC fried-chicken restaurants. The large cap stock’s China division, which includes Taiwan and Thailand, accounts for 37% of its sales and 43% of its earnings.

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Acquisition could further extend this large cap stock’s reach

Yum has formally offered to buy control of Little Sheep Group Ltd., which operates 480 “hot pot” restaurants in China, Japan, Canada and the U.S. Little Sheep’s Canadian hot pot restaurants are in Toronto, Ottawa, Montreal and Vancouver.

Hot Pot restaurants have special cooking pots at the centre of each table. Customers can serve themselves from the pots, which contain a seasoned broth of meat and vegetables.

Yum already owns 27.2% of Little Sheep. It is now offering to raise its ownership to 93.2%; Little Sheep’s founders would hold the remaining 6.8%.

The purchase will cost Yum $570.5 million to $586.3 million, depending on whether certain stock options are exercised. To put these figures in context, Yum earned $264 million, or $0.54 a share, in the three months ended March 19, 2011.

Large cap stocks: Get our full analysis of Yum’s aggressive overseas expansion FREE

In our May 20, 2011, Email/Telephone Hotline (which you can immediately view when you take a 1-month FREE trial to Wall Street Stock Forecaster), we’ve taken a close look at Yum, and updated our buy/sell/hold advice on the stock, based on the company’s fundamentals and its ongoing international expansion (including the risks of growing by acquisition).

(Note: If you are a current Wall Street Stock Forecaster subscriber, please click here to view Pat’s recommendation. Be sure to log in first.)

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