As Mexico’s economy reopens and recovers after the COVID-19 pandemic, FEMSA (FMX) has started to come back to life as well. Traffic is starting to improve in FEMSA’s OXXO stores, and margins have held up surprisingly well through this challenging time.
There are still multiple attractive drivers for FEMSA, including the expansion of the OXXO concept (particularly in Brazil), leveraging new distribution agreements (selling more Modelo through its distribution agreement with ABInBev (BUD)), launching the spin digital wallet, and driving more scale in the pharmacy business. On the other hand, there are also challenges, including standing doubts about the company’s capital allocation into lower-margin areas like logistics and distribution.
I’m still positive on FEMSA and I still see the prospect of double-digit long-term annualized returns on the back of mid-to-high single-digit revenue and FCF growth. Although management’s focus on long-term opportunities isn’t necessarily in sync with the Street’s fixation on short-term results, I believe patience will be rewarded.
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