It stands to reason that if people aren’t leaving their homes, and if they have less money to spend (and/or feel less confident in their economic prospects), store-based retailers aren’t going to do well. That’s a very simplified synopsis of what’s going on at FEMSA (FMX), but it’s basically accurate – consumer activity remains extremely weak on both reduced mobility and greater economic pressure in Mexico during the COVID-19 crisis, and FEMSA’s OXXO stores are suffering from a significant reduction in traffic. While there was a little upside from Coca-Cola FEMSA (KOF) and the pharmacy business in the quarter, it wasn’t enough to drive a good set of results.
FEMSA has been through downturns before, and while the specifics of this downturn are clearly different, I believe the company will recover as it has in the past. With a weak economic outlook for Mexico, though, evidence that FEMSA isn’t as defensive as once thought, and concerns about capital allocation decisions, it will take time for FEMSA to come back into favor. Given what I believe is mid-teens annualized total return potential from here, though, I’m content to wait.
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