5-Star Stocks Poised to Pop: Arcos Dorados
Brian D. Pacampara - July 13, 2011
Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, Arcos Dorados Holdings (NYSE: ARCO), which operates McDonald's (NYSE: MCD) franchises in South America, has earned a coveted five-star ranking.
With that in mind, let's take a closer look at Arcos Dorados' business and see what CAPS investors are saying about the stock right now.
Arcos Dorados facts
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Headquarters (Founded) Buenos Aires, Argentina (2007)
Market Cap $2.8 billion
Industry Restaurants
Trailing-12-Month Revenue $3.17 billion
Management Chairman/CEO Woods Staton CFO German Lemonnier
Trailing-12-Month Operating Margin 6.8%
Cash/Debt $141.2 million / $471.5 million
Competitors Yum! Brands (NYSE: YUM)
Sources: Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS.
On CAPS, 99% of the 152 members who have rated Arcos Dorados believe the stock will outperform the S&P 500 going forward. These bulls include TMFTypeoh and All-Star TMFBreakerForce.
Late last month, TMFTypeoh succinctly summed up the Arcos Dorados bull case: "Risky, but it's like investing in [McDonald's] 30 years ago. If it holds true, we've got a multibagger!"
Over the next five years, in fact, Arcos Dorados is expected to grow its bottom line at a brisk rate of 27% annually. That's much faster than other restaurant stocks like Yum! Brands (13%) and Starbucks (Nasdaq: SBUX) (18%).
CAPS All-Star TMFBreakerForce expands on the outperform argument:
Arcos Dorados (Golden Arches) is the world's largest McDonald's Franchisee. They operate in all of South America, Parts of Central America, and the Caribbean.
The bought all of MCD's South American franchises for less than book value back in 2007. The company has turned around the underperforming business, and is improving margins. They currently operate over 1,700 chains. According to the prospectus, the company intends to open at least 250 new locations by 2013.
It is estimated that the company could open at least 5,000 chains in the next decade, as the economies in the major countries in South America (Brazil, Argentina, Chile) continue to improve.
They have some debt outstanding but generated almost $264 Million in Cash Flow from Operations in 2010, so meeting debt obligations will not be an issue.
