Company Reports

We award a wide moat to Coca-Cola Femsa. We expect brand affinity from its status as wide-moat Coca-Cola's largest bottler by volume, combined with cost advantages from its massive manufacturing and distribution footprint, will reinforce its durable competitive position and maintain excess investment returns for more than 20 years.

We don’t plan any material changes to our $105 fair value estimate on narrow-moat Femsa after absorbing its solid first-quarter results. Sales were up 11% led by the OXXO chain and the bottling business, and operating profits rose 14%. We remain confident in the long-term outlook in the convenience format and the bottling segment. But given the setbacks in drugstores, we think it’s prudent for the firm to be more selective given complex macro and regulation backdrops and varying consumer preferences across Latin America. Our 10-year forecasts for sales CAGR and average operating margins both in the high single digits remain in place, and we view shares as slightly overvalued.

Wide-moat bottler Coke Femsa reported strong first-quarter results, with sales up 11% (18% in constant currency) and net profits up 28%, thereby reaffirming our confidence in the strength of the Coke brands in Latin America and the bottler’s in-market execution expertise. Our 10-year projection for a 6% sales CAGR and a 14% average operating margin remains in place, and we plan to tick up our $94 fair value estimate by a low-single-digit percentage on time value. Shares look fairly valued.

We are maintaining our $105 fair value estimate for narrow-moat Femsa after absorbing mixed 2023 results. Sales growth of 18% (adjusted for divestitures) met our estimate, but the 6% decline in operating income missed our projection for 1% growth. We attribute the profit shortfall to margin compression across retail formats due to high labor costs and a slower ramp-up in newer stores, both of which are fixable, in our view. We remain confident in the long-term outlook for the convenience and fuel formats as well as in bottling, but we see hurdles in regulations and consumer preferences for the struggling health format (5% of 2023 operating profit) and expect the firm to moderate its ambitions in the area. That said, our 10-year forecast for both sales CAGR and average operating margins in the high-single digits are still attainable. Shares look expensive, even after a 16% correction in the past week.

Wide-moat bottler Coke Femsa reported increases of 8% and 11% in 2023 sales and operating profits, respectively, matching our estimates. Excluding currency headwinds, volumes were up 8% and underlying pricing up 10%, which we view as a healthy mix that exemplifies the strength of the Coke brands and the bottler’s in-market execution expertise. For 2024, strong demand in Mexico and Brazil should support a mid-single-digit volume expansion, and we continue to see our 10-year projections for a 6% sales compound annual growth rate and 14% average operating margins as attainable. We plan to maintain our $94 fair value estimate.

We award a wide moat to Coca-Cola Femsa. We expect brand affinity from its status as wide-moat Coca-Cola's largest bottler by volume, combined with cost advantages from its massive manufacturing and distribution footprint, will reinforce its durable competitive position and maintain excess investment returns for more than 20 years.

We plan to raise our $97 fair value estimate on narrow-moat Femsa by a mid-single-digit percentage to incorporate better-than-expected third-quarter results, a stronger Mexican peso against the U.S. dollar and time value. Revenues grew 12% (excluding the Valora acquisition), and operating profits rose 10%, outpacing our estimates of 10% and 9%, respectively. Results were thanks to solid same-store sales at Oxxo and resilient beverage volume at subsidiary Coke Femsa. We plan to nudge up our 2023 profit projection by a low-single-digit percentage, but our 10-year forecasts for annual sales growth and average operating margins both in the high single digits remain in place. Shares trade in a range we'd consider fairly valued.

We plan to maintain our $94 fair value estimate on wide-moat Coca-Cola Femsa after absorbing the bottler’s better-than-expected third-quarter results, with revenue up 10% and adjusted net profits up 23%, outpacing our estimates of 8% and 15%, respectively. We plan to revise our 2023 estimates upward to incorporate the strong results, but our 10-year forecast for mid-single-digit percentage sales growth and operating margins averaging 14% remain in place. The stock looks attractive, trading at a 22% discount to our intrinsic valuation, and we suggest long-term investors consider buying this name given its strategic partnership with Coca Cola and cost advantages.

We award a wide moat to Coca-Cola Femsa. We expect brand affinity from its status as wide-moat Coca-Cola's largest bottler by volume, and cost advantages from its massive manufacturing and distribution footprint, to reinforce its durable competitive position and maintain excess investment returns for more than 20 years.

We expect to raise our $97 fair value estimate on narrow-moat Femsa by a mid-single digit percentage to incorporate better-than-expected second-quarter results and Mexican peso appreciation against the U.S. dollar. Organic revenue grew 9.5% (excluding the Valora acquisition) and operating profits were up 4.5%, edging our estimates (8.7% and 4.1%, respectively). Thus, we are nudging up our pre-print 2023 estimate by a low-single-digit percentage on the bottom line. Our 10-year forecasts for annual sales growth and average operating margins both in the high-single digits remain in place. Shares trade in a range we’d consider fairly valued.

We plan to maintain our $87 fair value estimate on wide-moat Coca-Cola Femsa after absorbing the bottler’s second-quarter results. Revenue and adjusted net profit grew 7.2% and 6.5%, respectively, roughly in line with our estimates of 7.0%% and 6.6%. Our 10-year forecast for mid-single-digit sales growth and operating margins averaging 14% remain in place, while we plan to revise our Morningstar Uncertainty Rating to Medium from High in keeping with our quantitative methodology. Following a 4% pop, the stock trades in a range we’d consider fairly valued.

We expect to maintain our $91 fair value estimate for narrow-moat Femsa after absorbing its first-quarter results, with organic revenue up 12% (ahead of our 11% forecast) and operating profits up 5% (below our 6% assumption). We attribute the profit shortfall primarily to a lower-than-expected operating margin of 1% from the newly acquired Valora retail in Europe, while profitability in bottling and other retail units was stable. Our 10-year forecast for 8.5% annual sales growth and operating margins averaging 9.3% remains in place. Shares are fairly valued, and we suggest investors wait for a better entry point as operational risks in a sprawling retail footprint across Latin America call for a wider margin of safety.

We expect to maintain our $87 fair value estimate on wide-moat Coca-Cola Femsa after absorbing the bottler’s first-quarter results, with revenue up 12% and adjusted net profits (excluding financial instrument-related charges) up 13%, slightly outpacing our estimates of 11% and 12%, respectively. Our 10-year forecast for mid-single-digit percentage annual sales growth and operating margins averaging 14% remain in place. Shares are fairly valued, and we suggest investors wait for a better entry point as macro and political volatilities in Latin America call for a wider margin of safety.

We award a wide moat to Coca-Cola Femsa. We expect brand affinity from its status as wide-moat Coca-Cola's largest bottler by volume, and cost advantages from its massive manufacturing and distribution scale, to reinforce its durable competitive position and maintain excess investment returns for more than 20 years.

We are maintaining our $83 fair value estimate on wide-moat Coca-Cola Femsa after absorbing the bottler’s 2022 full-year results, which included revenue of MXN 227 billion (3% better than our estimate) and net income of MXN 19 billion (in line with our projection after adjusting for deferred taxes). Our 10-year forecast for 6% sales growth and operating margins averaging 14% remain in place. The current share price implies a 12% discount, though we suggest investors wait for a better entry point as macro and political volatilities in Latin America call for a wider margin of safety.

We applaud the clarity and decisiveness with which narrow-moat Femsa unveiled its plan to focus on long-term strategic priorities in retail and beverage bottling and divest all noncore assets over the next 24 to 36 months, including its 15% stake in narrow-moat Heineken (valued at $8.5 billion) and the Envoy distribution business. Within a day of the announcement, Femsa representatives had resigned from the Heineken board, and the firm had initiated on an equity and exchangeable bond sale that will reduce its stake in the brewer to 8%. Following all divestitures, the simplified operating structure will include only wide-moat Coke Femsa and Femsa retail making up 32% and 68% of operating profits, respectively.

Coca-Cola Femsa and parent Femsa are well positioned to ride positive consumption trends across Latin America, thanks to the region's increasing disposable income, favorable demographic trends (rising population with a median age of 31), and underpenetration of branded consumer goods and services. We award a wide moat rating to Coca-Cola Femsa based on strong brand affinity arising from the bottler's symbiotic long-term partnership with wide-moat Coca-Cola and cost advantages from its manufacturing and distribution scale. We assign a narrow moat rating to Femsa (which has a 47% stake in Coke Femsa) as the complexity of managing sprawling retail businesses (over 50% of revenue) across disparate Latin American markets reduces our confidence in the firm’s ability to earn excess returns for more than 20 years.

We award a wide moat to Coca-Cola Femsa. We expect brand affinity from its status as wide-moat Coca-Cola's largest bottler by volume, and cost advantages from its massive manufacturing and distribution scale, to reinforce its durable competitive position and maintain excess investment returns for more than 20 years.

We are dropping coverage of Coca-Cola Femsa. We provide broad coverage of more than 1,500 companies globally and periodically adjust our coverage according to investor interest and staffing.

We view Coca-Cola Femsa as a narrow-moat firm even though, as a distributor, it bears risks emanating from the capital and operational intensity that go along with packaging and distributing finished beverages. We believe its importance is on par with that of brand owner wide-moat The Coca-Cola Company (TCCC) in terms of execution in the marketplace. We think TCCC is keenly aware of this reality, and the support it provides for bottlers like Coca-Cola Femsa should allow the latter to maintain its operating profile amid economic uncertainty and competitive intensity.