FEMSA Remains Meaningfully Undervalued On Post-Pandemic Normalization

The pandemic created some unprecedented challenges for FEMSA (FMX) in 2020. Prior downturns saw the company outperform on a relative basis, as people continued to consume Coca-Cola and shop for groceries, but stay-at-home orders and significant changes in consumer behavior made this is a different sort of downturn. Still, all in all, FEMSA executed reasonably well, and is well-positioned to take advantage of post-pandemic normalization.

I continue to like the basic growth story in FEMSA’s retail businesses, including adding more services attached to the OXXO brand in Mexico, extending the OXXO brand into Latin America, growing the pharmacy (“Salud”) business, and so on. I’m less certain on the company’s expansion into U.S. distribution (janitorial/sanitation, largely), but at least more disclosure will be coming.

I believe FEMSA shares remain meaningfully undervalued, with upside into the high $80s to low $90’s, and the shares have done well since my last update (up about a third). The Street needs to see evidence that the capital allocation to distribution was a wise move, but I do believe other opportunities like fin-tech, in addition to improving same-store sales at OXXO, can support improved sentiment.

 

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FEMSA Remains Meaningfully Undervalued On Post-Pandemic Normalization