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Fomento Economico Mexicano SAB de CV ADR FMX

Morningstar Rating
$130.03 −0.25 (0.19%)
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Company Report

Femsa Earnings: Strong Top Line but Lower Margins From High Labor Costs and Struggling Health Format

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.

Price vs Fair Value

FMX is trading at a 23% premium.
Price
$129.20
Fair Value
$945.00
Uncertainty
Medium
1-Star Price
$274.46
5-Star Price
$48.30
Economic Moat
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Capital Allocation
Vwpxwrnd

Bulls Say, Bears Say

Bulls

Oxxo dominates the convenience store market in Mexico, with an attractive return profile and plenty of room to expand the store base.

Bears

Femsa will face stringent business regulations and high costs of labor and real estate in Europe as it looks to turn around the newly acquired Valora convenience chain.

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News

Trading Information

Previous Close Price
$130.28
Day Range
$129.78130.75
52-Week Range
$91.89143.42
Bid/Ask
$129.81 / $130.20
Market Cap
$232.64 Bil
Volume/Avg
17,502 / 694,910

Key Statistics

Price/Earnings (Normalized)
110.44
Price/Sales
1.18
Dividend Yield (Trailing)
1.59%
Dividend Yield (Forward)
1.59%
Total Yield
1.59%

Company Profile

Mexico-based Femsa is a beverage and retail conglomerate in Central and South America. The holding company owns controlling stakes in bottler Coca-Cola Femsa (47% economic stake, 56% voting rights), in addition to operating 100%-owned retail assets, including convenience stores under the Oxxo banner, drugstores, and gas stations. The firm has digested its 15% stake in Heineken and its distribution business in 2023. Coca-Cola Femsa and the Oxxo chain made up 70% of total company revenue and around 75% of profits in 2022.
Sector
Consumer Defensive
Industry
Beverages - Brewers
Stock Style Box
Large Core
Total Number of Employees
350,000

Competitors

Valuation

Metric
FMX
ABEV
PEP
Price/Earnings (Normalized)
110.4411.8222.78
Price/Book Value
10.442.4012.89
Price/Sales
1.182.462.62
Price/Cash Flow
7.8517.42
Price/Earnings
FMX
ABEV
PEP

Financial Strength

Metric
FMX
ABEV
PEP
Quick Ratio
1.420.620.66
Current Ratio
1.930.890.85
Interest Coverage
5.635.5614.94
Quick Ratio
FMX
ABEV
PEP

Profitability

Metric
FMX
ABEV
PEP
Return on Assets (Normalized)
6.68%10.90%10.94%
Return on Equity (Normalized)
18.94%17.71%59.05%
Return on Invested Capital (Normalized)
8.41%17.20%18.39%
Return on Assets
FMX
ABEV
PEP
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Beverages - Brewers Industry Comparables

Ticker
Name
Morningstar Rating for Stocks
Capital Allocation
Economic Moat
Market Cap
BUDFF
Anheuser-Busch InBev SA/NVVKzlgr$120.1 Bil
BUD
Anheuser-Busch InBev SA/NV ADRTjydrkqsrgGbcd$120.1 Bil
HINKF
Heineken NVRfvjbj$54.7 Bil
HEINY
Heineken NV ADRYxnqjqsktCjdms$54.7 Bil
ABEV
Ambev SA ADRYdqbrcrdsFvgn$39.4 Bil
HKHHF
Heineken Holding NVJfv$23.3 Bil
CABGY
Carlsberg A/S ADRNbwydgkTyh$19.1 Bil
TAP
Molson Coors Beverage Co Shs -B- Non-VotingSfszsctDwhst$14.3 Bil
SAM
Boston Beer Co Inc Class AWlmwfnhjBjftswf$3.7 Bil

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