Seeking Alpha: Improving Traffic And Aggressive Capital Deployment Makes FEMSA An Intriguing Story

I can't complain about FEMSA's (NYSE:FMX) performance since my last write-up, as the U.S. ADRs of this leading Mexican retailer have risen more than 10%. Better still, the company's underlying financial performance has been pretty solid, and management has continued to deploy capital to support the long-term growth of the business.

I really like the company's expansion into Chile's drugstore sector, and I fully expect that FEMSA will follow it up with an expansion of its OXXO C-store concept into this under-penetrated country. I also expect further consolidation of the Mexican drugstore market, and I wouldn't be surprised if Coca-Cola FEMSA (NYSE:KOF) looks at a deal or two of its own. There is also the question of what FEMSA's management may elect to do with its Heineken (OTCQX:HEINY)(OTCQX:HKHHY) stake now that the lockup has expired and an acquisition of Heineken by SABMiller (OTCPK:SBMRY) is clearly off the table.

The "but" is that the move in the shares has mopped up a chunk of the undervaluation I saw back in the summer. I still like FEMSA as a long-term holding as I believe the company is on a trajectory to become one of, if not the, largest retailers south of the U.S. border over time. At this point, though, I would be inclined to advise new investors to hold off on building a full position in the hope that a market pullback would greater a bigger discount to full value.

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Improving Traffic And Aggressive Capital Deployment Makes FEMSA An Intriguing Story