Why Arcos Dorados Stock Just Jumped 16%

Core Viewpoint - Arcos Dorados stock is considered a bargain due to fast growth, a low valuation, and an unchanged royalty rate following the renewal of its master franchise agreement with McDonald's [1][2]. Group 1: Master Franchise Agreement Renewal - Arcos Dorados has replaced its existing master franchise agreement with a new 20-year agreement effective January 1, 2025 [2]. - The new agreement stipulates a royalty payment of 6% of gross sales for the first 10 years, increasing to 6.25% for years 11-15, and 6.5% for years 16-20 [2][3]. - The royalty rate will remain unchanged at 6% until 2034, providing stability for the company's profit margins despite potential sales growth [2]. Group 2: Growth Potential - Management believes there are significant growth opportunities in the 20 countries and territories where Arcos Dorados operates, including plans to open approximately 90 to 100 new restaurants in 2025 [3]. - Analysts project a 16% annualized earnings growth for Arcos Dorados over the next five years, supported by the new master franchise agreement [4]. Group 3: Valuation Metrics - The stock is currently valued at less than 11 times its trailing-12-month earnings, indicating a cheap valuation [4]. - The company has a PEG ratio of only 0.7, suggesting that the stock is undervalued relative to its expected growth [4].