Arcos Dorados Holdings (ARCO) is the largest independent McDonald's (MCD) franchisee in the world and the largest quick-service restaurant chain in Latin America and the Caribbean. The company has the exclusive right to own, operate, and grant franchises of McDonald's restaurants in 20 countries and territories in Latin America and the Caribbean, shares Nancy Zambell, editor of Cabot Money Club.

Those countries include Argentina, Aruba, Brazil, Chile, Colombia, Costa Rica, Curacao, Ecuador, French Guiana, Guadeloupe, Martinique, Mexico, Panama, Peru, Puerto Rico, Trinidad and Tobago, Uruguay, the US Virgin Islands of St. Croix and St. Thomas, and Venezuela.

Latin America has a growing middle class, which is leading to higher incomes and better access to credit. In this expanding environment, ARCO and its sub-franchisees own and operate 2,300 Latin American McDonald’s restaurants, employing more than 95,000 people.

Arco handily beat analysts’ earnings estimates in its third quarter, reporting EPS of 30 cents, considerably more than the consensus estimate of 20 cents, as well as 2022’s third quarter earnings of 23 cents per share. ARCO’s revenues rose 21.7%, year-over-year, to $1,115 million, also walloping Wall Street’s forecasts of $1,076 million.

Analysts expect ARCO to see EPS growth around 18.8% this year, higher than the industry average of 17.9%. And I won’t be surprised if that number expands, as consensus estimates have been rising for the past few months, more than 9% in a recent 30-day period.

Trading wise, Arcos Dorados boasted a PEG ratio of 1.17 in late 2023, compared with 2.23 for the industry. Its P/E ratio was just 14.19.

The shares are ranked “Strong Buy” by the analysts covering the company. Just 41.8% of its shares were owned by institutional investors, which means any big purchases could further boost the company’s share price.

ARCO recently had a market cap of $2.57 billion, and only 130.66 shares outstanding. I consider the shares a bargain at this price.

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