We maintain our Neutral recommendation on MercadoLibre (Baa3/BBB-/BBB-) and shift our preferred expression back to the MELI 3.125% 2031 notes from the 4.900% 2033s. The issuer stance is unchanged, but the reason for it has evolved. Our focus is no longer principally on the direction of margins. The more important question is whether growth is translating into enough earnings and cash to absorb the funding requirements of Fintech. 2Q26 showed operating profitability stabilizing, with adjusted EBITDA margin broadly unchanged sequentially at 9.6%, but the credit profile did not improve with it. Gross and net leverage rose to 3.39x and 1.65x, the credit portfolio grew 75.2% YoY against 49.8% consolidated revenue growth, and only $214 million of adjusted free cash flow remained after a quarter that generated $3.22 billion of free operating cash flow. We think that combination keeps MercadoLibre a strong investment-grade LatAm credit, but not one where current spreads offer enough cushion to move beyond Neutral.
For the issuer call, the question is whether current spreads compensate investors for a balance sheet expanding faster than earnings. We do not think they do. The 2031s at 128 bps OAS trade flat to the EM BBB corporate index and only 6 bps inside their own 1Y average, while sitting 5 bps wide of the 3M average of 123 bps. Both bonds also trade materially through the LatAm BBB curve. At those levels, the market already gives MercadoLibre substantial credit for its scale, ecosystem economics, and market access even as balance-sheet intensity continues to rise. Short-term coverage declined to 0.97x, or 1.08x including the undrawn revolver, and the credit portfolio continues to grow at a double-digit sequential pace. We see no issuer-level dislocation that would justify an Overweight.
