Arcos Dorados stock price target lowered to $10.50 at BofA on earnings

Arcos Dorados Holdings (ARCO) reported mixed Q2 2025 results, with EPS of $0.11 meeting consensus due to a refranchising gain, but revenue growth of 2.8% in U.S. dollar terms missed estimates, leading to pre-market share declines. While same-store sales grew 12.1% and adjusted EBITDA rose 4.7% excluding one-time items, headline EBITDA declined 7.3% and EPS fell 15.2% year-over-year due to lower non-recurring gains and higher interest expenses. BofA Securities lowered its price target to $10.50 from $11.00 while maintaining a Buy rating, noting analyst targets still suggest significant upside potential despite the revenue shortfall.

Analysis

Arcos Dorados Holdings (ARCO) presented a mixed financial report for its second quarter of 2025, revealing strong underlying operational metrics that were overshadowed by a top-line miss and reliance on non-recurring items. The company's 12.1% growth in same-store sales and the addition of 62 net new restaurants over the last year did not translate into a revenue beat, as the reported 2.8% increase in U.S. dollar terms fell short of analyst estimates, contributing to a pre-market share decline. While reported earnings per share of $0.11 met consensus, this figure was supported by a $0.02 refranchising gain. The headline figures show a 7.3% decline in EBITDA and a 15.2% fall in EPS year-over-year, primarily due to a significant $13.3 million reduction in non-recurring income and higher interest expenses. However, a look at core operations reveals a more positive picture: adjusted EBITDA, excluding one-time items, rose 4.7% and margins improved by 16 basis points, indicating successful cost management in payroll and other areas offset inflationary pressures from food and paper. This divergence between headline and adjusted performance explains the cautious yet still positive stance from BofA Securities, which lowered its price target to $10.50 but maintained a Buy rating, seeing upside from the current price level.

Key Decisions for Investors

• Investors should look past the headline EPS and EBITDA declines to focus on the strong underlying fundamentals, specifically the 12.1% same-store sales growth and the 4.7% rise in adjusted EBITDA, which signal core operational health.
• The primary risk factor to monitor is the company's ability to convert strong store-level performance into top-line revenue growth that meets market expectations, as the recent revenue miss was the main driver of the negative share price reaction.
• While BofA's price target reduction to $10.50 warrants caution, the maintained Buy rating suggests that for investors with a higher risk tolerance, the stock may present a value opportunity, provided the company can manage higher interest expenses and reduce its reliance on non-recurring gains.