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Investors in Arcos Dorados Holdings Inc. (NYSE:ARCO) had a good week, as its shares rose 7.6% to close at US$4.67 following the release of its quarterly results. It was a respectable set of results; while revenues of US$467m were in line with analyst predictions, statutory losses were 12% smaller than expected, with Arcos Dorados Holdings losing US$0.14 per share. This is an important time for investors, as they can track a company's performance in its report, look at what experts are forecasting for next year, and see if there has been any change to expectations for the business. With this in mind, we've gathered the latest statutory forecasts to see what the analysts are expecting for next year.
Taking into account the latest results, the current consensus from Arcos Dorados Holdings' seven analysts is for revenues of US$2.40b in 2021, which would reflect a notable 13% increase on its sales over the past 12 months. Arcos Dorados Holdings is also expected to turn profitable, with statutory earnings of US$0.17 per share. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$2.40b and earnings per share (EPS) of US$0.20 in 2021. So there's definitely been a decline in sentiment after the latest results, noting the substantial drop in new EPS forecasts.
It might be a surprise to learn that the consensus price target was broadly unchanged at US$6.34, with the analysts clearly implying that the forecast decline in earnings is not expected to have much of an impact on valuation. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. Currently, the most bullish analyst values Arcos Dorados Holdings at US$7.89 per share, while the most bearish prices it at US$5.00. As you can see, analysts are not all in agreement on the stock's future, but the range of estimates is still reasonably narrow, which could suggest that the outcome is not totally unpredictable.
Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. One thing stands out from these estimates, which is that Arcos Dorados Holdings is forecast to grow faster in the future than it has in the past, with revenues expected to grow 13%. If achieved, this would be a much better result than the 2.9% annual decline over the past five years. Compare this against analyst estimates for the wider industry, which suggest that (in aggregate) industry revenues are expected to grow 23% next year. So although Arcos Dorados Holdings' revenue growth is expected to improve, it is still expected to grow slower than the industry.
The Bottom Line
The most important thing to take away is that the analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. Fortunately, the analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that Arcos Dorados Holdings' revenues are expected to perform worse than the wider industry. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year's earnings. We have forecasts for Arcos Dorados Holdings going out to 2023, and you can see them free on our platform here.
It is also worth noting that we have found 1 warning sign for Arcos Dorados Holdings that you need to take into consideration.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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