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Coca-Cola Femsa SAB de CV ADR KOF

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Morningstar’s Analysis

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Coke Femsa Resilient Again in Q3; Financial Health Allowing It to Invest for Post-Pandemic Success

Analyst Note

| Nicholas Johnson, CFA |

Persistently high coronavirus case rates across its territories, weak functional currencies (particularly the Brazilian real), and general macro uncertainty continued to beleaguer shares of narrow-moat Coke Femsa heading into its third-quarter earnings print. Still, the results were solid (ahead of our expectations on both volume and profit), and despite limited visibility into when the tides might start to turn, the firm is continuing to invest in capabilities that should cement its competitive position. Our $60 fair value estimate is unchanged, and we still view the shares as egregiously undervalued. This can be partly attributed to the market’s general aversion to Latin America--Coke Amatil (a large Asia-Pacific bottler) being taken out by Coke European Partners, at roughly double Coke Femsa’s current trading multiple, helps elucidate this point. Still, we don’t believe sentiment surrounding the region has irreversibly soured, and when it turns, we expect patient Coke Femsa investors will be rewarded.

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Company Profile

Business Description

Coca-Cola Femsa, a subsidiary of Femsa, is the largest franchise bottler of the Coca-Cola Co. by volume. The firm primarily purchases beverage concentrates from TCCC, which it processes and packages, and then distributes the finished trademark beverages to on- and off-premises retailers. While Mexico and Brazil are Coca-Cola Femsa's most important markets, generating roughly 80% of sales, the firm operates in other Central and South American countries, including Panama, Guatemala, Uruguay, and Argentina. The equity value of the firm is divvied up between Femsa (which owns series A shares), TCCC (series D), and the public, holding 47%, 28%, and 25% economic interests, respectively. Series A and D shares control 89% of the voting rights and are not publicly listed.

Calle Mario Pani Number 100, Santa Fe Cuajimalpa
Ciudad de Mexico, DF, 05348, Mexico
T +52 5515195000
Sector Consumer Defensive
Industry Beverages - Non-Alcoholic
Most Recent Earnings Sep 30, 2020
Fiscal Year End Dec 31, 2020
Stock Type
Employees 80,000