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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