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.