In a report published Thursday, HSBC Global Research analyst Francisco Chevez downgraded the rating on Arcos Dorados (NYSE: ARCO) from Overweight to Neutral, and lowered the price target from $14.00 to $9.00.

In the report, HSBC Global Research noted, “In our view, the future of Arcos Dorados (Arco) remains highly correlated with the company's success in its biggest market, Brazil. Although the attention has been on Venezuela, we believe Arco's biggest challenge is reversing the deteriorating profitability in Brazil. During 1Q14, EBITDA margin declined to 10.6% from 11.9% during the same period of 2013. In addition, the average annual EBITDA margin in Brazil dropped to 13.4% in 2013 from 15.7% in 2010. We believe Arco margins are unlikely to recover until revenue growth can overcome rising labor costs over the long-term.”

Arcos Dorados closed on Wednesday at $8.68.

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