Brazilian stocks fell on Monday after leftist Luiz Inácio Lula da Silva unexpectedly won the country's presidential runoff, and the real slid sharply against the dollar on fears of loose fiscal discipline. Arcos Dorados, the world's largest McDonald's franchisee, is based in Uruguay but gets almost 40% of its revenue from Brazil, and its stock closed down nearly 13%. Bank of America analyst Robert Ford Aguilar downgraded the stock to neutral from a buy rating and cut his price target to $9 from $12, citing a macroeconomy that may strain under Lula's policies, possible sovereign debt downgrades and further real depreciation. The author considers the market reaction overdone, noting that Arcos performed quite well in Brazil during past periods of Lula's presidency and that McDonald's popularity gives it pricing power.
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