Issue #57

Inside the growth and profitability of the sector's top-rated leaders.

The restaurant industry in 2026 isn't being won by the most complex menus or the most expensive dining rooms—it’s being decided in the drive-thru lanes and through digital apps where speed, culture, and convenience intersect. As consumer habits shift toward high-frequency, tech-enabled ordering, the market is no longer just about food; it’s about the infrastructure of the daily routine.

In this environment, two distinct layers are driving the most consistent growth: the massive, reliable scale of global franchising and the high-energy, culture-led expansion of specialized beverage concepts. This is where the dining conversation shifts from "discretionary spending" to "daily habit"—and where the most resilient, high-growth winners are emerging.

👉 One company is the undisputed titan of Latin American quick-service, leveraging a brand-new 20-year agreement to dominate the fastest-growing digital markets in the Western Hemisphere.

👉 The other is a high-velocity beverage disruptor that has turned "coffee runs" into a cult-like experience, scaling its footprint with transaction growth that is currently outpacing every major competitor.

👉 Both are profitable, digital-first, and increasingly central to the modern consumer's everyday life.

In this edition, we break down the international powerhouse and the domestic growth engine fueling the 2026 restaurant economy—and why these two stocks sit at the center of the next wave of QSR dominance.

Arcos Dorados Holdings (NYSE: ARCO)

Arcos Dorados Holdings Inc. (NYSE: ARCO) is the world’s largest independent McDonald’s franchisee and the leading quick-service restaurant (QSR) chain in Latin America and the Caribbean. Operating across 20 countries and territories, including powerhouse markets like Brazil, Mexico, and Argentina, the company serves as the primary engine for the McDonald’s brand in the region. With over 2,400 locations, Arcos Dorados has built a massive footprint that blends global brand recognition with deep local operational expertise.

Business Model and Revenue Streams 📦

Arcos Dorados operates under a Master Franchise Agreement (MFA) with McDonald's Corporation, which was recently renewed for a 20-year term starting January 2025. This agreement gives them the exclusive right to own, operate, and grant franchises in their territories. Their revenue is generated through two primary channels:

• Company-Operated Restaurants: This is the company’s largest revenue contributor. Arcos Dorados directly manages approximately 75% of its locations, keeping the full ticket of every Big Mac and Happy Meal sold.
• Franchised Restaurants: About 25% of the network is run by sub-franchisees. In this model, Arcos Dorados earns revenue through rental income (often structured as a percentage of sales) and royalty fees.
• Complementary Sales Points: Beyond traditional restaurants, the company operates thousands of "Dessert Centers" and McCafé locations, which capture high-margin impulse purchases and drive foot traffic during non-peak meal times.

The business model is highly sensitive to macroeconomic shifts in Latin America, particularly currency fluctuations and inflation. Because the company reports in U.S. Dollars but earns in local currencies (like the Brazilian Real or Argentine Peso), a strengthening dollar can create "translation" headwinds. However, the company has proven adept at using dynamic pricing—adjusting menu prices in line with local inflation—to protect its margins. Current regional policies focused on digital transformation and infrastructure are also benefiting the company’s "Experience of the Future" (EOTF) initiative, which modernizes stores with self-service kiosks and enhanced delivery capabilities.

Recent Performance and Corporate Developments 📈

Arcos Dorados delivered a landmark performance in late 2025, marked by record-breaking revenue figures and a critical long-term strategic renewal.

Q3 2025 Financial Highlights: 💰

• Total Revenue: The company reached a single-quarter record of $1.19 billion, a 5.2% increase year-over-year. While slightly under analyst expectations, it represented a new high-water mark for the firm.
• Net Profit: Arcos Dorados reported a significant GAAP profit of $0.71 per share, far exceeding the $0.17 estimated by analysts. This was bolstered by a one-time federal tax credit in Brazil worth approximately $125 million.
• Digital Dominance: Digital channels (App, Delivery, and Kiosks) now account for 61% of systemwide sales, demonstrating a successful shift in consumer behavior.
• Loyalty Growth: The company’s loyalty program surged to 23.6 million members, a nearly 50% increase since the end of 2024.

Strategic Initiatives and Mergers: 🤝

The most significant development for the company's future was the 20-year renewal of its Master Franchise Agreement with McDonald’s, effective January 1, 2025. This secures the company’s rights through 2045 and provides a stable foundation for capital investment. Additionally, in late 2025, the company achieved a full investment-grade credit rating and entered into a new syndicated revolving credit facility, significantly lowering its cost of debt and improving its financial flexibility for 2026 expansion.

Profitability and Fair Value 🎯

Arcos Dorados has entered 2026 with a robust profitability profile, characterized by an Adjusted EBITDA of over $200 million in its most recent quarter and a healthy margin of 16.9%. The company’s path to value is centered on:

• Operating Leverage: As the company modernizes more stores (72% are already updated), the higher average check sizes from digital kiosks are improving store-level profitability.
• Brazilian Tax Efficiencies: The recognition of recent tax credits in Brazil will provide a positive cash impact over the next five years, allowing the company to offset federal tax obligations.

Regarding fair value, ARCO is currently seen as a compelling value play. With a trailing P/E ratio of approximately 6.6x, it trades at a significant discount to its historical averages and global peers. Discounted Cash Flow (DCF) models suggest a fair value in the range of $6.80 to $8.70, depending on currency stability. At current trading levels near $7.90, the stock is priced fairly, but it offers significant "catch-up" potential if Latin American currencies stabilize in 2026.

Analyst Estimates and Ratings 📊

• Consensus Rating: The stock has seen a surge in interest over the last 30 days, maintaining a consensus "Buy" or "Moderate Buy" across major firms like JPMorgan and Zacks.
• Price Target: The average 12-month price target is approximately $8.70, representing a double-digit upside from recent price levels.
• Growth Forecast: Analysts expect earnings to grow by roughly 15.8% in 2026, as the company moves past the "one-time" costs associated with its MFA renewal and begins to reap the benefits of its expanded loyalty program.

Investor-Focused Takeaway: Is ARCO Right for Your Portfolio?

Arcos Dorados is a "reopening and modernization" story in one of the world's most populous regions. The company offers a rare combination of a defensive "staple" business (fast food) with the high-growth potential of digital tech integration.

What to Watch in the Near Term: 📈

• 2026 FIFA World Cup: As a major sponsor and brand presence in soccer-loving Latin America, Arcos Dorados expects a significant boost in marketing visibility and traffic leading up to the event.
• Currency Volatility: Keep a close eye on the Brazilian Real; any strengthening of local currencies against the USD will provide an immediate tailwind to the reported bottom line.
• Royalty Structure: Monitor how the slight incremental increase in royalty fees (moving to 6.0% under the new MFA) impacts operating margins in the coming quarters.

Recommendation:

Arcos Dorados (ARCO) is a top pick for 2026 for investors seeking exposure to emerging market consumption through a proven, world-class brand. With its franchise rights secured for two decades and a dominant lead in digital sales, the company is well-positioned to outperform as regional economic conditions stabilize.

Dutch Bros Inc. (NYSE: BROS)

Dutch Bros Inc. (NYSE: BROS) is a high-growth operator and franchisor of drive-thru beverage shops, carving out a unique "category of one" in the crowded quick-service industry. Rather than a traditional coffee shop, Dutch Bros is a culture-led beverage concept specializing in high-energy service and hand-crafted drinks, including its proprietary "Rebel" energy line, teas, and smoothies. With over 1,000 locations across 24 states as of early 2026, the company is aggressively expanding from its West Coast roots into the Midwest and Southeast.

Business Model and Revenue Streams 📦

Dutch Bros’ business model is built on high-velocity drive-thru service with a "people-first" culture driven by its "Broistas." The company has shifted its strategy to focus almost exclusively on company-operated shops to maintain culture and capture higher margins. Its revenue is derived from:

• Company-Operated Shops: Over 90% of total revenue comes from these locations. This allows the company to maintain strict quality control and benefit directly from the high Average Unit Volumes (AUVs) which have reached record highs in 2025.
• Franchising and Others: While new franchises are generally only awarded to internal candidates, existing franchise partners contribute royalty and service fee revenue.
• Digital Flywheel: The "Dutch Rewards" program now accounts for approximately 72% of all system transactions. This digital ecosystem, combined with a rapidly scaling "Order Ahead" feature (13% of transactions and growing), drives customer frequency and enables precision marketing that protects margins from broad discounting.

Macroeconomic policies and trends are a dual-edged sword for BROS in 2026. While inflation in coffee prices and regulatory labor cost increases (particularly in California) have pressured margins by roughly 50–60 basis points, the company’s "idiosyncratic" transaction drivers—like its cult-like brand loyalty—have allowed it to post five consecutive quarters of transaction growth even as the broader QSR sector struggled with a "frugal" consumer.

Recent Performance and Corporate Developments 📈

Dutch Bros entered 2026 coming off a "blockbuster" 2025, highlighted by its CEO, Christine Barone, being named the 2026 Restaurant Leader of the Year.

Q3 & Q4 2025 Financial Highlights: 💰

• Revenue Growth: The company reported Q3 2025 revenue of $423.6 million, a 25.3% increase year-over-year, consistently beating analyst estimates.
• Same-Shop Sales: System-wide same-shop sales grew by 5.7%, fueled by a 4.7% increase in transactions—a metric where many competitors are currently seeing declines.
• Strategic Expansion: In late 2025, the company accelerated its "real estate engine," approving more than 30 new sites per month. It opened 38 new shops in Q3 alone and has set a target of 175 new system openings for 2026.
• Food Strategy: A major catalyst for 2026 is the systemwide rollout of a hot breakfast food platform. By installing ovens across its network, Dutch Bros aims to capture the "morning daypart" more effectively, with full deployment targeted for the end of 2026.

Recent News: In January 2026, the company further strengthened its leadership by appointing Jennifer Somers as Chief Shops Officer, signaling a focus on operational excellence as they scale toward their goal of 2,029 shops by 2029.

Profitability and Fair Value 🎯

Dutch Bros has successfully transitioned into a consistently profitable enterprise. Net income for the first nine months of 2025 increased by 85%, and the company is showing strong operating leverage as SG&A expenses as a percentage of revenue continue to decline.

• Profitability: For 2026, analysts expect EPS to jump to $0.88, a nearly 30% increase over 2025.
• Fair Value: Valuation remains the most debated aspect of BROS. Trading at a Forward P/E of approximately 68x and a P/S of 5.0x, it is significantly more expensive than the industry average. However, proponents argue this "growth premium" is justified by a 25% projected revenue growth rate—roughly double that of its peers. While DCF models suggest an intrinsic value closer to $46, the market is currently pricing in its massive 2,000+ store expansion potential, keeping the price hovering around $63.

Analyst Estimates and Ratings 📊

• Consensus Rating: The stock is a favorite among growth-oriented analysts, carrying a strong "Buy" consensus. In the last 30 days, 85% of analysts covering the stock have maintained or upgraded to a Buy rating.
• Price Targets: Recent target hikes have been aggressive. TD Cowen recently raised its target to $73, calling BROS its "best idea for 2026." UBS and Baird have even more bullish targets ranging from $85 to $95, suggesting a potential upside of over 40% from current levels.
• EPS Momentum: Estimates for 2026 have been revised upward by 8.6% in the last six months, signaling that Wall Street is gaining confidence in the company’s ability to manage costs while scaling.

Investor-Focused Takeaway: Is BROS Right for Your Portfolio?

Dutch Bros is a classic "Garp" (Growth at a Reasonable Price) play for some, and a "Pure Growth" play for others. Its ability to maintain transaction growth while others lose traffic makes it one of the most resilient stories in the 2026 restaurant landscape.

What to Watch in the Near Term: 📈

• Breakfast Rollout: Success in the new hot food category could be the primary driver for a "beat and raise" in 2026.
• New Market Productivity: Watch if the "consistently long lines" reported in new Southeast markets (Florida, Tennessee) persist as the "novelty" phase passes.
• Commodity Costs: Any cooling in coffee or dairy prices would directly drop to the bottom line, providing an immediate boost to shop-level margins.

Recommendation:

Dutch Bros (BROS) is a high-conviction growth pick for 2026. While the valuation is high, the company’s "transaction-driving" digital ecosystem and aggressive store rollout provide a clear path to sustained earnings growth that few other stocks in the sector can match.

Final Take: The Global Giant and the High-Energy Disruptor

The 2026 restaurant landscape is no longer about just selling meals—it’s about owning the digital relationship and the daily habit. Real winners in this space require two things: massive operational scale to protect margins and a cult-like brand loyalty that drives consistent foot traffic.

That’s where Arcos Dorados (ARCO) and Dutch Bros (BROS) stand apart.

🍔 Arcos Dorados (ARCO) — The Digital Powerhouse of Latin America

✔ Exclusive master franchisee for McDonald’s across 20 high-growth territories

✔ Digital sales now exceeding 60%, powered by a massive 23M+ loyalty base

✔ Secured 20-year growth runway with a newly renewed franchise agreement

➤ Best for: Investors seeking a high-margin, defensive value play with massive emerging market upside and a fortress-like brand.

⚡ Dutch Bros (BROS) — The High-Velocity Beverage Engine

✔ Outpacing the industry with consistent, positive year-over-year transaction growth

✔ Aggressive 2026 expansion plan targeting 175+ new shop openings

✔ Strategic pivot into hot food and "Order Ahead" to unlock new morning revenue

➤ Best for: Investors looking for explosive growth and a "category of one" concept that is successfully stealing market share from traditional coffee giants.

Investor Insight

🧩 Want global scale, digital dominance, and deep value? → ARCO

⚙️ Want rapid domestic expansion and industry-leading transaction growth? → BROS

Bottom Line:

The restaurant sector doesn't scale on menu complexity—it scales on speed of service and digital integration.

Arcos Dorados owns the operational backbone of Latin American dining, while Dutch Bros is redefining the high-growth beverage experience in the U.S. As the industry moves toward a tech-first future, ARCO and BROS aren't just participants—they are the blueprints for 2026 profitability.

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Happy Trading
​— Team Premium Stock Alerts