Arcos Dorados Holdings Inc. Class A Shares (ARCO)

FairStock Score: 78/100 — HIGH CONVICTION

Key Financials

Strengths

• Generates $121 million in annual free cash flow (6.1% yield on market cap)
• Strong Piotroski F-Score of 7/9 indicating robust financial health across profitability, leverage, and efficiency metrics
• High return on equity of 33.2% demonstrating efficient capital deployment
• Attractive 3.0% dividend yield providing steady income returns
• FairStock composite score of 78/100 places it in the top tier across value, quality, and momentum factors

Concerns

• High leverage at 2.91x debt-to-equity increases financial risk and interest expense burden
• Altman Z-Score of 1.2 places it in the financial distress zone—elevated bankruptcy risk

AI Analysis

Arcos Dorados Holdings Inc. Class A Shares is a micro-cap consumer cyclical company valued at $2.0 billion. The business generates $4.7 billion in annual revenue with a 0.5% net margin and $121 million in free cash flow. From a quality standpoint, Arcos shows solid Piotroski F-Score of 7/9 and distressed Altman Z-Score of 1.2 warrants caution. On valuation, the stock is deeply undervalued on a P/E basis at 9.2x, with trades above its Graham Number with a negative 5% margin. Growth dynamics show revenue growing at 5.2% and profit growth of 327.2%. The 3.0% dividend yield adds an income component for patient holders. Our composite FairStock Score of 78/100 reflects strong fundamentals overall. Investors should weigh the business quality against the current price and their own margin of safety requirements.

Bull Case

The market underappreciates Arcos's consistent 33% ROE at just 9x earnings—a re-rating toward sector peers could unlock 30-50% upside. With $121 million in annual free cash flow (6.1% yield), management has ample capital for buybacks, dividends, or accretive acquisitions.

Bear Case

Elevated leverage at 2.9x D/E means rising interest rates or revenue weakness could strain debt covenants and force asset sales at distressed prices. Regulatory changes, input cost inflation, or demand normalization represent underappreciated risks that could materially impact forward estimates.

Data from SEC filings. AI analysis is for educational purposes only — not investment advice. Scoring methodology · Disclaimer