Arcos Dorados: McDonald's, But Cheaper With Better Growth

Core Insights - Arcos Dorados is the largest independent franchisee of McDonald's and the largest restaurant operator in Latin America, growing at double the pace of its parent company [1] - The company reported $1.1 billion in net sales for Q1, reflecting a 9.1% increase, significantly outpacing McDonald's growth of 4.6% [4] - Arcos Dorados offers an attractive dividend yield of 2.27% with a strong annualized 3-year dividend growth of 57.48% [2] Financial Performance - The company achieved a systemwide comparable sales growth of 38.6%, driven by inflation and volume growth, which has been positive for 12 consecutive quarters [4][5] - Consolidated adjusted EBITDA growth was 8.4%, with a GAAP income of 14 cents, slightly below consensus expectations [5] - The stock trades at a valuation of near 10x this year's earnings outlook, compared to McDonald's 22x, indicating a deep value opportunity [2][7] Strategic Initiatives - Arcos Dorados is implementing a three-D strategy focusing on Digital, Drive-thru, and Delivery, with digital sales constituting 55% of revenue [5] - The company is accelerating its store openings, with 22 new stores planned for the year, reflecting strong demand across its markets [5][6] - Sponsorship of Formula One in Latin America is expected to enhance brand awareness and growth over the coming years [6] Analyst Sentiment - Analysts maintain a bullish outlook on Arcos Dorados, with a consensus price target of $13.38, suggesting a potential upside of 25% from current levels [7] - The stock has shown signs of support near recent lows, indicating a potential rebound if market conditions remain favorable [7]