Why This Arcos Dorados Analyst Is Turning Bullish After Q4 Earnings

Arcos Dorados Holdings Inc ARCO reported stronger-than-expected sales and achieved an impressive gross margin recovery in its fourth-quarter report, with “better operating leverage on leaner cost structures,” according to BofA Securities.

The company is the largest franchisee of McDonald's Corp MCD restaurants. 

The Arcos Dorados Holdings Analyst: Robert Aguilar upgraded Arcos Dorados Holdings from Neutral to Buy and raised the price target from $7.80 to $10.

The Arcos Dorados Holdings Takeaways: The company is “emerging from COVID with a leaner cost structure, greater store automation, more direct to consumer (DTC) marketing, and increasingly sophisticated customer relationship management (CRM) tools, while also sustaining much higher levels of sales via delivery,” Aguilar said in the Thursday upgrade note.

As sales come closer to the pre-pandemic levels in real terms, Arcos Dorados’ margins could reach and subsequently exceed the earlier figures, the analyst said. 

“We suggest that widespread restaurant industry dislocation creates substantial opportunity for consolidation and fast food industry growth,” he said. 

BofA raised its earnings estimates for 2022 and 2023 from 31 cents per share to 35 cents per share and from 38 cents per share to 43 cents per share, respectively.

ARCO Price Action: Shares of Arcos Dorados were up 0.38% at $7.85 Thursday afternoon.