- Macro issues like forex and regional instability hurting shares this year

- ARCO changes to improve sales, profitability evident in strong 2Q

- Introducing marketing and digitalization initiatives; stock looks cheap; 50% upside?

“Brazil é o pais do futuro e sempre será” is a phrase Brazilians sometimes say with a shrug. Translated it’s “Brazil is the country of the future and always will be.”

It’s well known on Wall Street, too.  Despite being blessed with many natural resources, fertile land, and a large population, Brazil remains a sleeping economic giant, if you will, punching below its weight. Stocks in the general region suffer from a discount.  So if you scratch your head at Arcos Dorados Holdings (ARCO), which trades on the NYSE, I can’t blame you. But you might miss an undervalued stock.

ARCO is a smallish midcap, $1.3 billion, admittedly with some hair on it. It’s the largest McDonald’s (MCD) franchisee in the world and Latin America’s biggest restaurant chain, with over 2,200 stores in 20 countries. Some 50% of revenue and about 75% of earnings before interest, depreciation and amortization (Ebitda) come from Brazil.  Wait, don’t turn away. That’s where the opportunity might lie.

The company is making a co...

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