Femsa Earnings: Strong Performance in Convenience and Bottling but Health Format Remains Weak

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.