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Coca-Cola Femsa SAB de CV ADR KOF

Morningstar Rating
$98.84 −1.57 (1.56%)
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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

KOF is trading at a 5% premium.
Price
$98.84
Fair Value
$56.00
Uncertainty
Medium
1-Star Price
$871.80
5-Star Price
$67.20
Economic Moat
Qnxm
Capital Allocation
Nywrxvvh

Bulls Say, Bears Say

Bulls

Coca-Cola Femsa can leverage strong retail relationships to drive volume growth in under-penetrated markets across Latin America, tapping soft-drink demand with classic recipes and new products tailored to local tastes.

Bears

Lower discretionary spending levels and less-developed transportation infrastructure in Latin America remain hurdles to the bottler’s efforts to increase consumption of Coke products.

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News

Trading Information

Previous Close Price
$100.41
Day Range
$97.14101.95
52-Week Range
$69.34104.38
Bid/Ask
$98.26 / $99.14
Market Cap
$20.76 Bil
Volume/Avg
164,913 / 144,706

Key Statistics

Price/Earnings (Normalized)
17.47
Price/Sales
1.56
Dividend Yield (Trailing)
3.31%
Dividend Yield (Forward)
3.33%
Total Yield
3.31%

Company Profile

Coca-Cola Femsa, a subsidiary of Femsa, is the largest franchise bottler of wide-moat Coca-Cola in unit case volume terms. The company purchases beverage concentrates and syrup from Coca-Cola, which it then processes and packages for distribution through on-trade and off-trade channels, including retailers and food-service providers. Mexico and Brazil make up 80% of total sales for Coca-Cola Femsa, with the rest from other Central and South American countries, including Panama, Guatemala, Uruguay, and Argentina. Parent Femsa and Coca-Cola hold 47% and 28% of economic interests in Coca-Cola Femsa, through nonpublicly traded A and D shares, respectively, while controlling 56% and 33% of the respective voting rights.
Sector
Consumer Defensive
Industry
Beverages - Non-Alcoholic
Stock Style Box
Large Core
Total Number of Employees
80,000

Competitors

Valuation

Metric
KOF
KDP
ABEV
Price/Earnings (Normalized)
17.4717.8711.92
Price/Book Value
2.911.712.31
Price/Sales
1.562.982.50
Price/Cash Flow
14.768.45
Price/Earnings
KOF
KDP
ABEV

Financial Strength

Metric
KOF
KDP
ABEV
Quick Ratio
0.900.200.75
Current Ratio
1.230.381.11
Interest Coverage
6.066.569.93
Quick Ratio
KOF
KDP
ABEV

Profitability

Metric
KOF
KDP
ABEV
Return on Assets (Normalized)
7.88%4.86%11.30%
Return on Equity (Normalized)
17.58%9.95%18.12%
Return on Invested Capital (Normalized)
11.20%7.37%16.62%
Return on Assets
KOF
KDP
ABEV
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Beverages - Non-Alcoholic Industry Comparables

Ticker
Name
Morningstar Rating for Stocks
Economic Moat
Market Cap
KO
Coca-Cola CoSxcm$263.9 Bil
PEP
PepsiCo IncWgb$233.1 Bil
NNFSF
Nongfu Spring Co Ltd Class H Ordinary SharesFtknz$64.3 Bil
MNST
Monster Beverage CorpZhxwj$57.5 Bil
KDP
Keurig Dr Pepper IncKpcgwd$41.9 Bil
CCEP
Coca-Cola Europacific Partners PLCFsfqzh$31.1 Bil
COCSF
Coca-Cola Femsa SAB de CV Series LDpm$20.6 Bil
CELH
Celsius Holdings IncLxtj$14.8 Bil
PRMW
Primo Water CorpMrvn$2.5 Bil

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