Monday, March 2, 2020

OXXO Carrying The Load For FEMSA

FEMSA (FMX) shares haven’t been particularly strong lately (even before the recent market-wide selloff), and I believe at least part of the reason is increasing investor concern over the company’s capital allocation decisions. Acquisitions in the pharmacy and fueling space have yet to really deliver, and now the company is going even further afield to invest in wholesaling and logistics in the U.S. and Brazil. On the other hand, the core OXXO business remains a fortress business for FEMSA, generating significant cash flow that buys the company time for these other investments to mature and deliver.

While the share price has declined to a point where the valuation seems very attractive, capital allocation worries remain. Between recent rumors of a potential acquisition in Brazil and a U.S. bond issuance, nobody really believes that FEMSA is done putting capital to work in M&A. While these concerns are valid, FEMSA management’s historical performance should earn it more benefit of the doubt than it is getting, and I believe the shares remain quite attractive.

Read the full article here:
OXXO Carrying The Load For FEMSA

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