Arcos Dorados Holdings (ARCO) AI Stock Analysis

• Market Cap: $1.62B
• Dividend Yield: 3.13%
• Average Volume (3M): 1.39M
• Price to Earnings (P/E): 12.0
• Beta (1Y): 0.42
• Revenue Growth: 0.97%
• EPS Growth: -22.17%
• Country: US
• Employees: 100,000
• Sector: Consumer Cyclical
• Sector Strength: 58
• Industry: Restaurants
• EPS (TTM): 0.07
• Shares Outstanding: 130,663,060
• 10 Day Avg. Volume: 1,295,284
• 30 Day Avg. Volume: 1,392,805
• PEG Ratio: 0.06
• Price to Book (P/B): 5.44
• Price to Sales (P/S): 0.00
• P/FCF Ratio: 13.72
• Enterprise Value/Market Cap: 1.89
• Enterprise Value/Revenue: 0.17
• Enterprise Value/Gross Profit: 5.20
• Enterprise Value/Ebitda: 1.66
• 1Y Price Target: $10.25
• Price Target Upside: 33.64% Upside
• Rating Consensus: Moderate Buy
• Number of Analyst Covering: 2

• Rating: 63 Neutral
• Price Target: $8.00 ▲(4.30%Upside)

Arcos Dorados Holdings' overall stock score is primarily influenced by its strong market position and digital sales growth. However, high debt levels, negative free cash flow, and margin pressures in Brazil are notable concerns. The stock's reasonable valuation and attractive dividend yield provide some offsetting positives.

Positive Factors

Brand Strategy

Strong ever brand equity and differentiated successful Digital, Delivery and Drive-thru strategy continues reinforce leadership position.

Investor Interest

Increasing interest from investors in Arcos Dorados is attracted by its inexpensive valuation and resilient business model equipped to face regional economic challenges.

Valuation

The current valuation is seen as attractive below 10xPE26e with an improving EPS growth outlook.

Negative Factors

Currency Devaluation

In USD sales declined 2.7% negatively affected by currencies devaluation.

Gross Margin Pressure

Gross margin pressure anticipated due to rising COGS from higher beef prices, notably in Brazil from higher beef prices and changes in royalty rates.

Macroeconomic Pressures

Growth should be limited as macroeconomic pressures should strain the consumption environment in Brazil and Mexico while recovering in Argentina.

Arcos Dorados Holdings Business Overview & Revenue Model

Company Description

Arcos Dorados Holdings (ARCO) is the largest independent McDonald's franchisee in the world, operating McDonald's-branded restaurants in Latin America and the Caribbean. The company is headquartered in Montevideo, Uruguay, and manages over 2,000 restaurants across 20 countries and territories in the region. Arcos Dorados focuses on providing high-quality fast-food products, including burgers, fries, beverages, and desserts, while maintaining a commitment to sustainability and community engagement.

How the Company Makes Money

Arcos Dorados Holdings makes money primarily through the operation of McDonald's-branded restaurants across Latin America and the Caribbean. The company's revenue streams include sales from food and beverages, which constitute the bulk of its income. Arcos Dorados benefits from its franchising agreement with McDonald's, which allows it to leverage the global brand's marketing, menu offerings, and operational expertise. The company also generates revenue through delivery services, drive-thru sales, and digital ordering platforms, which have become increasingly significant in recent years. Key factors contributing to its earnings include strategic locations, menu innovation, and a focus on customer experience, as well as partnerships with delivery service providers to expand its reach.

Arcos Dorados Holdings Financial Statement Overview

Summary

Arcos Dorados Holdings exhibits stable revenue growth and solid profit margins, with effective equity use reflected in high ROE. However, high debt levels and negative free cash flow present potential risks, necessitating improved cash flow management and leverage reduction.

Income Statement

Arcos Dorados Holdings shows a stable revenue growth trend, with a 3.19% increase from the previous year. The company maintains a healthy gross profit margin of 13.12% and a net profit margin of 3.33%, though the latter has decreased compared to the prior year. EBIT and EBITDA margins are at 7.26% and 11.25%, respectively, indicating operational efficiency. The consistent revenue increase and profitability margins suggest a positive trajectory, albeit with a slight decline in profitability.

Balance Sheet

The balance sheet reflects a moderate financial structure with a debt-to-equity ratio of 3.39, suggesting a higher reliance on debt financing. Return on Equity (ROE) is 29.27%, showing effective use of equity to generate profit, though it has decreased from the previous year. The equity ratio stands at 17.57%, indicating a lower proportion of assets financed by equity. While the company shows strong ROE, the high debt levels could pose a risk if not managed carefully.

Cash Flow

Arcos Dorados Holdings experienced a decline in operating cash flow and free cash flow, resulting in a negative free cash flow of -60.79 million. The operating cash flow to net income ratio is 1.79, indicating adequate cash generation from operations relative to net income. However, the free cash flow to net income ratio is negative, highlighting challenges in cash retention. These cash flow challenges could impact liquidity if not addressed.

Breakdown
Dec 2024	Dec 2023	Dec 2022	Dec 2021	Dec 2020
Income Statement		Total Revenue
4.47B	4.33B	3.62B	2.66B	1.98B
	Gross Profit
586.42M	597.14M	2.59B	324.06M	115.44M
	EBIT
324.51M	312.14M	144.65M	139.52M	-66.75M
	EBITDA
502.88M	459.66M	386.25M	244.69M	51.51M
	Net Income Common Stockholders
148.76M	181.27M	140.34M	45.49M	-149.39M
Balance Sheet		Cash, Cash Equivalents and Short-Term Investments
138.59M	246.77M	304.40M	278.83M	165.99M
	Total Assets
2.89B	3.02B	2.64B	2.36B	2.29B
	Total Debt
1.72B	1.69B	1.56B	1.53B	1.61B
	Net Debt
1.59B	1.49B	1.29B	1.25B	1.44B
	Total Liabilities
2.38B	2.50B	2.31B	2.14B	2.10B
	Stockholders Equity
508.08M	515.28M	323.62M	220.43M	197.55M
Cash Flow		Free Cash Flow
-60.79M	21.87M	128.32M	143.04M	-70.34M
	Operating Cash Flow
266.85M	381.96M	345.44M	258.04M	15.97M
	Investing Cash Flow
-280.33M	-380.35M	-259.65M	-108.28M	-88.71M
	Financing Cash Flow
-37.16M	-11.82M	-59.98M	-17.93M	126.01M

Arcos Dorados Holdings Technical Analysis

• Technical Analysis Sentiment: Neutral
• Last Price: 7.67
• 50DMA: Positive
• 100DMA: Negative
• 200DMA: Negative
• MACD: Negative
• RSI: Neutral
• STOCH: Negative

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For ARCO, the sentiment is Neutral. The current price of 7.67 is above the 20-day moving average (MA) of 7.49, above the 50-day MA of 7.52, and below the 200-day MA of 8.01, indicating a neutral trend. The MACD of >-0.01 indicates Negative momentum. The RSI at 54.79 is Neutral, neither overbought nor oversold. The STOCH value of 82.48 is Negative, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Neutral sentiment for ARCO.

Arcos Dorados Holdings Peers Comparison

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
MCD	71 Outperform	$211.86B	26.14	-216.57%	2.39%	-0.22%	-3.83%
DPZ	66 Neutral	$15.56B	26.05	-14.74%	1.53%	4.28%	13.76%
WEN	66 Neutral	$2.15B	11.97	90.40%	4.99%	2.18%	-5.15%
YUM	66 Neutral	$39.45B	28.30	-19.43%	2.00%	10.09%	-11.50%
PZZA	65 Neutral	$1.63B	21.10	-20.16%	3.69%	-2.77%	4.01%
ARCO	63 Neutral	$1.62B	12.04	26.84%	3.13%	0.97%	-22.17%
Sector *	62 Neutral	$6.86B	11.07	2.77%	4.27%	2.66%	-24.95%