Arcos Dorados Holdings Inc. (NYSE:ARCO) is the world’s largest independent McDonald’s franchisee, operating the largest quick service restaurant chain in Latin America and the Caribbean. ARCO has the exclusive right to own, operate, and grant franchises of McDonald’s restaurants in 20 Latin American and Caribbean countries and territories.
Arcos Dorados is scheduled to report its first quarter financial results before the open on Wednesday, May 18. In the final quarter of 2021, ARCO reported an EPS (earnings per share) of $0.22. Wall Street analysts anticipate that the McDonald's franchisee will report steeply decreased earnings of $0.06 per share in this upcoming earnings report.
During its last eight earnings reports, ARCO enjoyed higher next-day returns four times, including a 9.2% next-day pop of 9.2% in November 2021. Regardless of direction, the security average a next-day swing of 4.4%, which is much smaller than the 11.4% move the options pits are pricing in this time around.
Arcos Dorados stock has managed to cling to a 16.8% year-to-date lead, and a 12.9% year-to-date gain, despite a recent pullback from its March 29, three-year high of $8.44. The stock's 120-day moving average has emerged as support on the charts, capturing this pullback early last week.
On the other hand, the McDonald's franchisee holds a weak balance sheet with $278.83 million in cash and $1.55 billion in total debt. Arcos Dorados has also struggled to grow its top and bottom-lines in recent years. Specifically, the business reported back-to-back annual revenue declines in 2019 and 2020. ARCO also reported $149.45 million in net losses for fiscal 2020, indicating a decrease from the prior year, largely due to the pandemic.
Arcos Dorados is, however, expected to increase revenues by 14.5% for fiscal 2022 and by 7.9% for fiscal 2023. ARCO is also estimated to grow earnings by a significant 54.2% for fiscal 2022 and by 18.9% for fiscal 2023, indicating a strong expected recovery for the company’s profitability.
Furthermore, Arcos Dorados stock offers a solid dividend yield of 1.72% with a forward dividend of $0.12, making it and viable option for passive investors. In addition, Arcos Dorados stock trades at a forward price-earnings ratio of 16.89 and a price-sales ratio of 0.53, indicating relatively fair values.