After Yum Brands' (NYSE:YUM) "long speculated structural change' announced yesterday, broker Jefferies rates the shares a 'hold'.
Analyst Andy Barish has a target price on the stock of US$71.
The global restaurant chain unveiled plans to spin off its China business, after unsuccessful years in the world’s second-largest economy.
When the transition is completed by the end of next year, Yum China will be a separate, publicly traded franchisee of Yum Brands.
Analyst Barish said in a note today: "The decision to separate its China business is somewhat surprising given YUM's historical culture, but also solidifies our view that conditions in China are becoming increasingly challenging and the potential for improvement is unlikely to occur any time soon.
"This will obviously reduce some of the volatility that YUM has experienced over the past year with its China business as it will only collect a franchise fee from the business once the two companies are officially separate, with China serving as Yum! Brands' largest franchisee."
The split will allow Yum Brands to concentrate on re-energizing its stagnating business in the United States as well as grow in emerging markets such as India.
Yum Brands entered China in 1987 through its KFC brand and for years, the China business took the lead in driving sales for the company.
However, over the past several quarters, sales have faltered as the business has been slapped with multiple problems ranging from a meat scandal to marketing missteps.
Earlier this month, Yum Brands said the pace of recovery in its Chinese business was below its expectations as the company reported weaker earnings than forecast by Wall Street.
Yum Brands has 41,000 restaurants in more than 125 countries and territories, the bulk of them franchised locations.