Arcos Dorados (ARCO) vs. Papa John’s Int’l (PZZA) Financial Survey

Arcos Dorados (NASDAQ: PZZA) and Papa John’s Int’l (NASDAQ:PZZA) are both small-cap retail/wholesale companies, but which is the superior investment? We will compare the two businesses based on the strength of their profitability, risk, institutional ownership, dividends, analyst recommendations, valuation and earnings.

Insider and Institutional Ownership

35.7% of Arcos Dorados shares are held by institutional investors. Comparatively, 82.7% of Papa John’s Int’l shares are held by institutional investors. 31.8% of Papa John’s Int’l shares are held by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company will outperform the market over the long term.

Analyst Ratings

This is a breakdown of current recommendations and price targets for Arcos Dorados and Papa John’s Int’l, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Arcos Dorados 0 0 1 0 3.00
Papa John’s Int’l 0 4 5 0 2.56

Arcos Dorados currently has a consensus target price of $12.00, indicating a potential upside of 77.78%. Papa John’s Int’l has a consensus target price of $58.38, indicating a potential upside of 26.57%. Given Arcos Dorados’ stronger consensus rating and higher probable upside, research analysts plainly believe Arcos Dorados is more favorable than Papa John’s Int’l.

Valuation & Earnings

This table compares Arcos Dorados and Papa John’s Int’l’s gross revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Arcos Dorados $3.32 billion 0.43 $129.16 million $0.61 11.07
Papa John’s Int’l $1.78 billion 0.82 $102.29 million $2.62 17.60

Arcos Dorados has higher revenue and earnings than Papa John’s Int’l. Arcos Dorados is trading at a lower price-to-earnings ratio than Papa John’s Int’l, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares Arcos Dorados and Papa John’s Int’l’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Arcos Dorados 2.82% 21.03% 5.69%
Papa John’s Int’l 4.54% -47.37% 13.75%

Volatility and Risk

Arcos Dorados has a beta of 1.75, suggesting that its share price is 75% more volatile than the S&P 500. Comparatively, Papa John’s Int’l has a beta of 0.4, suggesting that its share price is 60% less volatile than the S&P 500.

Dividends

Arcos Dorados pays an annual dividend of $0.10 per share and has a dividend yield of 1.5%. Papa John’s Int’l pays an annual dividend of $0.90 per share and has a dividend yield of 2.0%. Arcos Dorados pays out 16.4% of its earnings in the form of a dividend. Papa John’s Int’l pays out 34.4% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Papa John’s Int’l has increased its dividend for 4 consecutive years. Papa John’s Int’l is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Summary

Papa John’s Int’l beats Arcos Dorados on 10 of the 17 factors compared between the two stocks.

Arcos Dorados Company Profile

Arcos Dorados Holdings Inc. operates as a franchisee of McDonald's restaurants. It has the exclusive right to own, operate, and grant franchises of McDonald's restaurants in 20 countries and territories in Latin America and the Caribbean, including Argentina, Aruba, Brazil, Chile, Colombia, Costa Rica, Curaçao, Ecuador, French Guiana, Guadeloupe, Martinique, Mexico, Panama, Peru, Puerto Rico, Trinidad and Tobago, Uruguay, the United States Virgin Islands of St. Croix and St. Thomas, and Venezuela. As of April 27, 2018, the company operated or franchised approximately 2,100 McDonald's-branded restaurants. Arcos Dorados Holdings Inc. was founded in 2007 and is based in Montevideo, Uruguay.

Papa John’s Int’l Company Profile

Papa John's International, Inc. operates and franchises pizza delivery and carryout restaurants under the Papa John's trademark in the United States and internationally. It operates through five segments: Domestic Company-Owned Restaurants, North America Commissaries, North America Franchising, International Operations, and All Others. The company also operates dine-in and delivery restaurants. As of December 31, 2017, it operated 5,199 Papa John's restaurants, which included 743 company-owned and 4,456 franchised restaurants. The company was founded in 1984 and is headquartered in Louisville, Kentucky.

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