Latin And European Urbanization And Digital Platforms Will Redefine Dining

Key Takeaways

• Aggressive digitalization, menu innovation, and strategic remodelings are accelerating customer retention, operating leverage, and positioning for significant outperformance in sales and earnings growth.
  
• Unique scale and data-driven monetization are driving higher customer spend, recurring revenues, and ongoing margin expansion-setting Alsea apart from competitors amid industry shifts.
  
• Rising costs, currency volatility, and strategic dependence on international brands threaten profitability, margins, and earnings growth amid fierce competition and macroeconomic pressures.

Catalysts

Operates restaurants in Latin America and Europe.

• Analyst consensus sees value in expansion and digitalization, but is potentially underestimating the magnitude and pace of benefits; Alsea's disciplined organic growth, strategic focus on high-ROI remodelings, and aggressive digital loyalty rollouts are accelerating same-store sales, customer retention, and operating leverage faster than peers, positioning the company for outsized revenue and EBITDA growth well above current forecasts.
  
• Analyst consensus recognizes digital platform gains, but does not fully capture Alsea's ability to monetize deep customer data through personalized offers, targeted pricing, and new sales channels; this is driving higher ticket sizes and net margin expansion at a rate that could materially surprise to the upside.
  
• Alsea's unparalleled scale across Latin America and Europe uniquely positions it to capture surging demand from growing urban middle classes who view dining out and delivery as everyday essentials, unlocking recurring revenue streams and sustainable multi-year sales growth as cities densify and incomes rise.
  
• Enterprise-wide productivity initiatives-including advanced digital workforce optimization and shared service centers-are reducing structural SG&A across regions, which when coupled with centralized procurement, is expected to unlock ongoing operating margin gains and robust earnings growth even amid labor and cost inflation.
  
• The company's proven ability to rapidly innovate menus and successfully introduce new high-potential brands, such as Chipotle, positions Alsea to lead in premium health-conscious food segments and capture consumer willingness to pay for quality and wellness, supporting both revenue per store and long-term margin uplift.

Alsea. de Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Alsea. de compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Alsea. de's revenue will grow by 9.0% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 2.7% today to 5.4% in 3 years time.
• The bullish analysts expect earnings to reach MX$5.8 billion (and earnings per share of MX$6.12) by about July 2028, up from MX$2.2 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 17.5x on those 2028 earnings, down from 19.8x today. This future PE is greater than the current PE for the MX Hospitality industry at 15.9x.
• Analysts expect the number of shares outstanding to decline by 1.37% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 21.47%, as per the Simply Wall St company report.

Alsea. de Future Earnings Per Share Growth

Risks

• Accelerating labor cost inflation, especially given references to ongoing labor reforms, tighter labor markets, and the company's need to invest in digitalization to offset productivity pressures, could squeeze operating margins and reduce future profitability.
  
• Heightened exposure to currency volatility and economic instability in Latin American markets was repeatedly mentioned, with South America and especially Argentina and Chile experiencing lower traffic, persistent consumption weakness, and FX-driven cost pressures, all of which increase earnings volatility and threaten consolidated revenues.
  
• Rising input costs due to climate-related shocks and commodity price spikes, such as the nearly 100% increase in coffee prices mentioned for Starbucks, combined with management's cautious approach to pricing, could reduce gross margins and limit the ability to maintain net margins without sacrificing traffic and revenue growth.
  
• Over-reliance on international franchise brands like Starbucks, Domino's, and Burger King exposes Alsea to royalty payments and limited strategic flexibility, as shown in the ongoing underperformance and lack of recovery in Burger King, negatively impacting net income stability and margin expansion.
  
• Intensifying competition from local players and digital-native entrants, as well as the need for significant capital expenditures on store remodeling, technology, and menu innovation, could drive up costs relative to sales, lowering returns on invested capital and compressing long-term earnings growth.

Valuation

• The assumed bullish price target for Alsea. de is MX$74.08, which represents two standard deviations above the consensus price target of MX$58.62. This valuation is based on what can be assumed as the expectations of Alsea. de's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of MX$75.0, and the most bearish reporting a price target of just MX$41.7.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be MX$107.5 billion, earnings will come to MX$5.8 billion, and it would be trading on a PE ratio of 17.5x, assuming you use a discount rate of 21.5%.
  
• Given the current share price of MX$54.89, the bullish analyst price target of MX$74.08 is 25.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.