FEMSA Has Value Here, But Corporate Strategy Is Now Controversial

With global economies breaking under the strain of Covid-19, consumer staples like soda, beer, and the like should hold up better on balance. Add in currency risk and worries about the health of the Mexican economy (and the Mexican consumer) and corporate capital allocation decisions, though, and you have a decidedly less supportive environment for FEMSA (FMX) these days.

I think I can see where FEMSA management is going with its recent capital allocation decisions, but the fact remains that these are significant allocations of capital outside of what FEMSA does best, with little-to-no explanation from management as to why they haven’t decided to expand the OXXO concept more aggressively. What’s more, beer and sodas that aren’t drunk today don’t benefit from “catch up” spending later. With that, my fair value for FEMSA is lower now, though I do think the market has over-corrected here to a point where it is undervalued on the core operations.

Follow this link to the full article:
FEMSA Has Value Here, But Corporate Strategy Is Now Controversial