Thursday, January 16, 2014

Seeking Alpha: Arcos Dorados Stronger Than Its Stock

It's cold comfort for shareholders, but it seems like Arcos Dorados (ARCO) has gotten sucked into the same "anti-polar" vortex as many other consumer-oriented Latin American stocks. With the USD/BRL exchange rate moving from 2.03 to 2.37 over the past year and the USD / MXN rate moving from 12.67 to 13.08, worries about consumer spending trends in markets like Brazil and Mexico and the economies of Argentina and Venezuela are almost secondary.

The good news is that, as an operating company, Arcos Dorados is still doing pretty well. Sluggish comp growth in Brazil is a worry, but comps have generally been picking up and margins seem to have stabilized. I'm looking for strong comp growth and unit expansion to drive revenue growth, and I believe the shares are meaningfully undervalued today. All of that said, investors are going to have to be able to deal patiently with the ups and downs of currency movements or take a more aggressive view towards entering, exiting, and re-entering the shares.

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Arcos Dorados Stronger Than Its Stock

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