Arcos Dorados Holdings Inc. (ARCO): what the price requires
The current priced-in claim for Arcos Dorados Holdings Inc. (ARCO) is temporarily suppressed because the live engine record is unavailable. The dated report remains a snapshot, not a current market read.
Generated: 2026-07-14 · Exported: 2026-07-16 · Source: https://boothcheck.com/report/ARCO
Headline
| Field | Value |
|---|---|
| Ticker | ARCO |
| Company | Arcos Dorados Holdings Inc. |
| Current price | $8.28/sh |
| Composition | Sales by Company-operated restaurants 95% / Revenues from franchised restaurants 5% |
What The Price Requires (Inversion)
The assumption today's price embeds, recovered by inverting the valuation.
| Field | Value |
|---|---|
| Inversion basis | whole-company |
| Operating margin needed | 2.0% |
| Operating margin today | 7.8% |
| Margin compression implied | -5.8pp |
| Multiple paid | 10x operating income |
The operating-margin requirement is derived from the framework's value band at year 12, a separately labeled basis from the headline growth/duration solve.
The price sits below what even a 5%/yr operating-profit decline would warrant; the inversion reports a bound, not a solved growth path.
Solve inputs: computed at a 7% cost of capital with 4% terminal growth over a 5-year stage (computed at the 7% minimum rate; the CAPM rate 4.9% sits below it).
How unusual the bet is: within-range (limited comparison data)
| Reference | Value |
|---|---|
| vs own history | -0.32σ |
| implied end-window share | 0% |
Valuation X-Ray
The price is supported by asset-based and earnings-power and relative-multiple and growth-DCF value. A value/asset-supported name, not a pure growth bet.
How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.
| Family | Median price/FV | Models | Reads |
|---|---|---|---|
| Asset | 0.76x | 5 | justifies |
| Earnings | 0.76x | 3 | justifies |
| Relative | 0.22x | 5 | justifies |
| Growth | 0.97x | 3 | justifies |
Families that justify the price: Asset, Earnings, Relative, Growth
The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 4.3%); the inversion above states its own rate.
Per-Model Detail (n=16)
| Model | Family | FV | Price/FV | Applicable | Methodology |
|---|---|---|---|---|---|
| DCF Perpetual Growth | Growth | — | — | no | — |
| DCF Exit Multiple | Growth | $17.33 | 0.48x | yes | Exit EV/EBITDA: 4.4x / 6.4x / 8.4x (bear / base = today's held flat / bull), 6yr |
| Relative Valuation | Relative | $25.15 | 0.33x | yes | P/E 20.09x (blended: static sector reference 28x + trailing (TTM) 8x), scenarios: 16.4x / 20.1x / 23.8x (bear / base = reference held flat / bull), EV/EBITDA 13.38x |
| Simple DDM | Growth | — | — | no | — |
| Two-Stage DDM | Growth | $8.51 | 0.97x | yes | Stage 1: 20% for 5yr, Stage 2: 3.5% perpetual |
| Simple Excess Return | Asset | $10.89 | 0.76x | yes | BV/sh $3.66, ROE (TTM) 27.5%, ke 9.3% |
| Two-Stage Excess Return | Asset | $19.11 | 0.43x | yes | 5yr excess ROE then converge to ke=9.3% |
| Discounted Future Market Cap | Growth | $8.36 | 0.99x | yes | Rev $4.7B, growth 16% (input: historical growth; tapered), Terminal P/S: 0.3x / 0.4x / 0.4x (bear / base = today's held flat / bull, cap 12x) |
| Peter Lynch Fair Value | Relative | $35.35 | 0.23x | yes | EPS $1.01, growth 35% (input: historical EPS growth), PEG=0.23 (Undervalued) |
| Margin Trajectory | Growth | — | — | no | — |
| Earnings Power Value | Earnings | $10.87 | 0.76x | yes | Normalized EBIT (5y avg op income, one-time charges added back) $0.28B × (1−38%) / WACC 4.3% → EPV (no growth) |
| Residual Income | Asset | $16.37 | 0.51x | yes | BV $3.66 + 5yr PV of (ROE (TTM) 27.5% − Kₑ 9.3%) × BV; BV grows 8.8%/yr |
| Graham Number | Asset | $9.12 | 0.91x | yes | √(22.5 × EPS $1.01 × BVPS $3.66) — Graham's conservative floor |
| EV/EBITDA Relative | Relative | $39.10 | 0.21x | yes | EBITDA $0.56B × sector EV/EBITDA 18.0x |
| FCF Yield | Earnings | $0.01 | 828.00x | yes | FCF $15.0M / Kₑ 9.3% — zero-growth perpetuity (excluded from median) |
| SBC-Adj FCF Yield | Earnings | — | — | no | — |
| Ben Graham Formula | Earnings | $32.59 | 0.25x | yes | EPS $1.01 × (8.5 + 2×15.0%) × (4.4 / 5.3%) |
| ROIC-Justified P/B | Asset | $7.38 | 1.12x | yes | BV $3.66 × (ROIC 8.6% / WACC 4.3%) |
| P/Sales Sector | Relative | $99.93 | 0.08x | yes | Revenue $4.68B × sector P/S 4.5x |
| PEG Fair Value | Relative | $37.88 | 0.22x | yes | EPS $1.01 × (PEG 1.5 × growth 25.0% (input: historical EPS growth)) → PE 37.5x |
| Earnings Yield | Earnings | $10.92 | 0.76x | yes | EPS $1.01 / required return 9.3% (Rf 4.3% + ERP 5.0%) |
| Funds From Operations Multiple | Relative | — | — | no | — |
| Clinical Phase NPV | Growth | — | — | no | — |
| Merton | Asset | — | — | no | — |
| V5 Mechanical | — | — | — | no | — |
Solvency
| Field | Value |
|---|---|
| Net debt | $715.3m |
| Net debt / NOPAT (after-tax) | 3.15x |
| Net debt / operating income (pre-tax) | 1.96x |
| Interest coverage | 26.7x |
| Share count CAGR (dilution) | 0.0% |
| Burning cash | no |
Bullet Takeaways
- Arcos Dorados is McDonald's exclusive franchisee across 21 Latin American and Caribbean countries with more than 2,500 restaurants, and it posted record Q1 2026 revenue of $1.216 billion, up 12.9%, with system-wide comparable sales up 16%.
- The biggest risk is translation and check-led growth: earnings are reported in US dollars but generated in volatile currencies, and the mid-teens comparable-sales gain came mainly from average check, a tailwind that fades when local inflation cools.
- Watch the pace of new openings against the full-year plan of 105 to 115 restaurants and whether comparable-sales growth shifts from check toward traffic; the company opened 19 units in the first quarter while keeping net debt under one times operating income.
Bull Case
Start with the fear, because it is the cheapest way to understand the stock. Arcos Dorados operates McDonald's restaurants across 21 Latin American and Caribbean countries, which means its reported results pass through some of the world's most volatile currencies before they reach a US dollar income statement. The bear says that is a structurally discounted business: every peso and real of operating profit is one devaluation away from shrinking when translated. That risk is real. What the price seems to miss is that the operating business underneath the translation is not shrinking; it is taking share. First-quarter 2026 revenue hit a record $1.216 billion, up 12.9% year over year, and system-wide comparable sales rose 16%. A business compounding comparable sales in the mid-teens is not a melting ice cube. It is a franchise growing through the currency noise rather than because of it.
The quality of that growth is the bull's strongest card. Comparable-sales gains came mainly from average check rather than from discounting traffic into the stores, and adjusted EBITDA reached $118 million, up 29.3%. Profit growing faster than revenue is operating leverage on a fixed restaurant base, the same dynamic that makes franchised quick-service such a durable model. Net income rose to $36.14 million from a far smaller figure a year earlier, with earnings per share of $0.17 against $0.07. The company is also still building: 19 new restaurants opened in the quarter against a full-year plan of 105 to 115. Each new unit is incremental capacity in markets where McDonald's brand strength is a moat a local competitor cannot rent.
The balance sheet carries the expansion without strain. Net debt sits around $764 million, under one times trailing operating income, interest is covered roughly nine times over, and the company is not burning cash. That is the profile of a business that can fund 100-plus openings a year out of its own cash flow while the currency cycle does what it does. The exclusive McDonald's franchise rights across the region are the asset; the restaurant-level economics are the engine; and at today's price the market is paying a single-digit multiple of operating income for both. The bull case is not that Latin America gets easy. It is that a growing, cash-generative franchise priced for decline is mispriced when it keeps not declining.
Bear Case
The record first quarter rests on one assumption that the bear should press hardest: that average check, not traffic, can keep carrying comparable sales. System-wide comparable sales rose 16% in the quarter, driven mainly by higher average check. In high-inflation economies, a rising average check is partly the menu repricing to keep up with local prices, not a sign that customers are buying more. When inflation cools, the check-driven tailwind fades, and the growth has to come from traffic and unit expansion instead. The most fragile piece of the bull thesis is the durability of that check-led comp, because it is the variable most tied to a macro backdrop the company does not control.
The currency exposure is the second dependency, and it cuts at the translated earnings the US-dollar investor actually receives. Arcos Dorados earns in Brazilian reais, Argentine pesos, Mexican pesos, and a dozen other currencies, then reports in dollars. A strong quarter in local terms can compress on translation, and the relationship is not symmetric: devaluations tend to arrive faster than the menu can reprice to offset them. The market's low multiple is partly a rational discount for this. The bear's point is not that the discount is unjustified; it is that the discount can widen if a major market like Argentina or Brazil moves against the company, and the reported earnings would shrink even if every restaurant kept performing.
The valuation methods split in a way that frames the risk precisely. The relative-multiple and forward-growth lenses defend the price; the asset-value and earnings-power methods say it is expensive, with the asset-value family valuing the equity at well under half the price on book value and returns. The tension is that the company's return on equity, in the high single digits, sits below its cost of equity, so on a pure book-and-returns basis the business does not yet earn its keep. That is what the asset methods are flagging. The balance sheet is sound, with net debt under one times operating income and interest covered comfortably, so this is not a solvency bear. It is a returns bear: a business that grows revenue impressively but has not yet shown it can compound book value above its cost of capital through a full currency cycle. If the next macro turn is unfavorable, the low multiple is the market being right, not the market being wrong.
Valuation
At $8.76 the price is doing something unusual: it is paying roughly 10 times company-wide operating income, a multiple so low that it sits below what even a steady mid-single-digit annual decline in operating profit would warrant. In plain terms, the market is not asking the business to grow. It is pricing in a slow erosion. That is the opposite of the usual problem this report describes, where the price demands years of high growth to make sense. Here the price demands almost nothing, which makes the question whether the business is actually deteriorating or merely discounted for the geography it operates in.
The methods triangulate to a split verdict, and the split is the whole story. The forward-growth and peer-multiple lenses land at or near the price: a peer earnings multiple and a discounted future-revenue approach both reach roughly today's quote. The asset-value and earnings-power families say the opposite, valuing the equity at well under half the price. The asset methods get there because trailing return on equity, in the high single digits, sits below the cost of equity, so book-value-plus-returns math discounts the stock. The reason the two camps disagree is timing: the relative and growth lenses credit the mid-teens comparable-sales momentum, while the asset lenses credit only the returns the company has already booked. A reader should treat the low-end earnings-power outputs with care, since a near-zero free-cash-flow base produces degenerate multiples that overstate the cheapness; the cleaner read is the peer-multiple and growth camp landing near price against the asset camp landing well below.
The balance sheet supports the downside rather than threatening it. Net debt of about $764 million is under one times trailing operating income, interest is covered roughly nine times, and the company is not burning cash, so the expansion plan is self-funding. One measurement caveat belongs in plain sight: the trailing operating income read from the EDGAR filings differs materially from the figure the priced-in inversion uses, so the two are different measurement bases and neither should be substituted for the other. What the buyer underwrites at this price is not a growth bet. It is a wager that a cash-generative McDonald's franchise, priced as if it will slowly shrink, instead holds its ground through the currency cycle.
Catalysts
The first quarter of 2026 was the defining recent event and it was strong. Arcos Dorados reported record revenue of $1.216 billion, up 12.9% year over year, with net income of $36.14 million and earnings per share of $0.17, up from $0.07 a year earlier. Adjusted EBITDA reached $118 million, a 29.3% increase that the company described as its highest first-quarter result in US-dollar terms, and system-wide comparable sales rose 16%, driven mainly by average check with improving guest traffic in several markets. Profit grew faster than revenue, which is the operating leverage a franchised restaurant base is supposed to produce.
The forward catalysts are unit growth and the geographic mix of comparable sales. The company opened 19 restaurants in the quarter and reaffirmed a full-year plan of 105 to 115 new openings, the capital program that turns brand strength into incremental capacity across the region. The two variables worth watching into the next prints are whether new-unit openings stay on the high end of that range and whether comparable-sales growth begins to lean more on traffic than on check, which would signal real demand rather than menu repricing. Currency moves in the largest markets, Brazil and Argentina, remain the swing factor between strong local results and the dollars that reach the income statement.
Peer Cohorts (Per Segment, With Filing Citations)
Core business (reported)
- MCD (McDONALD’S CORPORATION)
- (no filing in the citation store)
- QSR (RESTAURANT BRANDS INTERNATIONAL INC.)
- (no filing in the citation store)
- YUM (YUM! BRANDS, INC.)
- (no filing in the citation store)
- YUMC (Yum China Holdings, Inc.)
- (no filing in the citation store)
- CMG (CHIPOTLE MEXICAN GRILL, INC.)
- (no filing in the citation store)
- SBUX (Starbucks Corporation)
- (no filing in the citation store)
- EAT (BRINKER INTERNATIONAL, INC.)
- (no filing in the citation store)
- DRI (DARDEN RESTAURANTS, INC.)
- (no filing in the citation store)
Methodology Note
- Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
- Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
- Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
- Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.
Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.
Sources
Q1 2026 earnings release · Q1 2026 earnings call · Arcos Dorados balance-sheet data