What happened
Shares of Arcos Dorados (ARCO -0.91%), which, as the name implies, is both the world's largest independent McDonald's franchisee and the largest restaurant chain in Latin America, is living up to its name of Golden Arches today with a strong 7% gain through 1:30 p.m. ET.
Arcos Dorados crushed analyst expectations for $0.13 per share in profit on $953.4 million in quarterly sales this morning, reporting $0.18 per share and $990.8 million instead.
So what
Same-store sales for franchises open more than a year surged 37.6% year over year in Q1 2023. Total sales (including 48 newer locations) grew 25.3%. Sales grew fastest in the company's South Latin American Division -- up 30%. North Latin American sales increased 27.2%, followed by Brazil with a 19.9% gain.
Profits across all divisions increased an even more impressive 50% in comparison to last year's Q1.
Now what
Management did not provide guidance for later in this year, but according to analysts who follow the company, Q2 results should be similarly strong, with growth only slowing later in the year.
In Q2, forecasts call for Arcos Dorados to grow sales 9% this coming quarter -- but double last year's Q2 profits to $0.15 per share. Through year end, sales growth should average 14%, and profits will be up 10% (assuming the analysts are correct, that is) year over year at $0.74 per share.
That works out to about a 12.2 times multiple to earnings on full-year results, and suffice it to say that "12x earnings" doesn't seem like too much to pay for a stock growing sales at 14% for the year, and growing its earnings at 50% and 100% rates in back-to-back quarters. Add in a modest 1.9% dividend yield for some walking-around money, and Arcos Dorados looks like a good growth-at-a-reasonable price stock to me, with a nice dividend kicker.
If you're debating whether to buy McDonald's (MCD -0.43%) stock at 28 times forward earnings or its Latin American cousin -- don't debate. This is really a very easy choice to make.
