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Fomento Economico Mexicano SAB de CV ADR FMX

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Morningstar’s Analysis

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Femsa's Long-Term Prospects Intact Despite Near-Term Uncertainty; Shares Attractive

Analyst Note

| Nicholas Johnson, CFA |

With Coca-Cola Femsa having reported before narrow-moat Femsa’s fourth-quarter earnings print, we suspect investors were primarily aiming to gauge the health of the latter's the proximity unit (housing its crown-jewel Oxxo convenience store chain) and ancillary units (like Jetro Restaurant Depot and Waxie), looking for any inkling as to the timing and structure of upcoming financial disclosures for these increasingly sizable businesses. While results were mixed--ahead on revenue and slightly behind on profit relative to our expectations--management commentary was generally constructive, and we believe the core businesses remain well positioned strategically. After accounting for time value as well as disclosures once the firm’s 20-F is filed, we’ll likely raise our $82 per ADR fair value estimate modestly. The shares rallied meaningfully toward the end of last year but have since tapered off, rendering them undervalued, in our view.

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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 15% stake in Heineken, while Comercio operates through three primary 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, including logistics services and restaurant operations, such as Specialty’s in the U.S.

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, 2020
Fiscal Year End Dec 31, 2019
Stock Type
Employees 320,000