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Fomento Economico Mexicano SAB de CV ADR FMX

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Morningstar’s Analysis

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Narrow-Moat Femsa Is Recovering Well From Coronavirus Disruptions; Shares Slightly Undervalued

David Swartz Equity Analyst

Analyst Note

| David Swartz |

Despite lingering effects of the pandemic, narrow-moat Femsa’s results for 2021’s third quarter (revenue growth of 12.6% and a 9.1% operating margin) keep it on track to reach our full-year estimates of 8.2% revenue growth and an operating margin of 8.3%. We do not expect to make any material change to our fair value estimate of $92 per ADR and view Femsa as slightly undervalued. However, we see greater potential upside in its subsidiary, narrow-moat Coca-Cola Femsa, which trades at a roughly 22% discount to our fair value estimate of $69 (see our Oct. 28 note).

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Company Profile

Business Description

Femsa is a holding company with controlling interests in three entities: It owns a 47% economic and 56% voting interest in Coca-Cola Femsa, while wholly owning Femsa Comercio and CB Equity. CB Equity houses a roughly 15% stake in Heineken, while Comercio operates through three business units: proximity, which houses Oxxo, the largest small-format chain in the Americas, with convenience stores in Mexico and South America (including Brazil through a joint venture with Raizen); health, which operates pharmacies across a geographic footprint similar to Oxxo; and fuel, which operates retail service stations under franchisee arrangements in Mexico. Femsa also controls several other tangential businesses in the U.S., including logistics services and specialized distributors like WAXIE.

Contact
General Anaya No. 601 Pte., Colonia Bella Vista
Monterrey, NL, 64410, Mexico
T +52 8183286000
Sector Consumer Defensive
Industry Beverages - Brewers
Most Recent Earnings Sep 30, 2021
Fiscal Year End Dec 31, 2020
Stock Type
Employees 320,000

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