Industry: Quick-Service Restaurants   

About Company: Arcos Dorados is the largest McDonald’s franchisee globally and operates nearly 2,400 McDonald’s restaurants across 20 countries in Latin America and the Caribbean. It serves over 4.3 million customers daily, combining company-operated and franchised locations under its master franchise agreement.

Company History:

• Founded in August 2007, when regional operators acquired McDonald’s Latin American operations from the parent company.
• IPO launched in April 2011 on the NYSE under ARCO ticker.
• In October 2024, Arcos Dorados renewed its master franchise agreement with McDonald’s for another 20 years (effective Jan 1, 2025), including a royalty structure starting at 6% for the first decade.

Company Advantage Over Competitors:

• Operates the exclusive McDonald’s franchise in LATAM & Caribbean, offering scale and brand moat unmatched by local restaurant chains.
• Market leader regionally: largest QSR chain in its territory with deep local market knowledge and training infrastructure via McDonald’s University.
• Consistent same-store sales growth: Q1 2025 comps rose 11.1% year-over-year; digital sales now represent nearly 60% of systemwide volume. Loyalty membership reached 18.8M users across six countries.

Risk Factors You May Want to Consider:

• Currency volatility: Revenue reported in USD may fluctuate due to FX exposure across LATAM economies. Net income fell to $0.07 EPS in Q1 2025, down from $0.14 in prior year, partly due to currency headwinds and derivative losses.
• Regional macroeconomic risks: Inflation, regulatory shifts, and economic slowdowns in LATAM markets may adversely impact profitability. JPMorgan recently downgraded ARCO due to Brazilian cost pressures.
• Low growth/no growth: TTM revenue was flat at ~$4.47B (up just 0.97% YoY), limiting upside unless there’s meaningful same-store sales momentum.

What Makes This Company Special or a Good Investment?

• Stable dividend payer: ARCO pays a quarterly dividend of $0.06/share (~3.3–3.4% yield), consistent with approximately 34% payout ratio. Next ex-dividend is Sep 23, 2025.
• Attractive valuation: Trading at a P/E of ~10.4–11.3× and P/S of ~0.31×. Analysts’ average target is ~$10.40—implying ~44% upside from current price ~7.5–7.0 USD.
• Solid margins and scale: Adjusted EBITDA in Q1 2025 was $91.3M (8.5% margin), with net income margin ~1.3%.
• Long-term McDonald’s franchise stability: The newly renewed franchise agreement until 2045 provides long-term revenue visibility and brand alignment.