Coca-Cola FEMSA Offers Interesting Value Today And Upside Down The Line

I've made no secret over the years that Fomento Economico Mexicano, S.A.B. De C.V. (FEMSA) (NYSE:FMX) is one of my favorite emerging market companies, as I believe the company has a solid cash-generating business in Coca-Cola FEMSA (NYSE:KOF), exciting growth opportunities on the retail side with its OXXO stores and growing pharmacy business, and significant options with the 20% stake it holds in Heineken (OTCQX:HEINY).

I'm looking at Coca-Cola FEMSA in a little more depth today, though, because I think the valuation here is pretty interesting, there are good growth opportunities on the horizon, and investors may be more comfortable with an emerging markets business anchored by demand for Coca-Cola (NYSE:KO) products rather than a more speculative retailing-based growth story. I believe Coca-Cola FEMSA is priced to generate low-to-mid double-digit total annual returns at today's price, with potential earnings upside tied to economic recoveries in major markets, improved performance in Brazil, and expansion into other bottling markets.

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Coca-Cola FEMSA Offers Interesting Value Today And Upside Down The Line

Seeking Alpha: Can Coca-Cola Amatil Bring Back The Fizz?

Bottling is often overstated as a great business. Bottling and selling assorted flavored sugar waters with Coca-Cola (KO) or PepsiCo (PEP) labels can be a license to print money in some cases, but other factors like competition, consumer preferences, and the power of retailers can make a big difference. Investors in Coca-Cola Amatil (OTCPK:CCLAY) have seen just how significant these factors can be, as the shares of what has been regarded as one of the best-run Coca-Cola bottlers are down more than 40% over the past year as a variety of factors have combined to undermine profits.

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Can Coca-Cola Amatil Bring Back The Fizz?

Investopedia: Even When Coca-Cola Stumbles, It Does Okay

If this is what a bad quarter from Coca-Cola (NYSE:KO) looks like, it's not hard to see why the stock carries a rich multiple. Even in one of the weakest quarters in a long time (from a volume perspective), Coca-Cola did well with its margins. Add in the possibility of improving the company's global operations, particularly in fast-growing markets like China and Indonesia, and the long-term prospects still look pretty good. Alas, the stock still isn't anything close to “cheap” and is unlikely to become so anytime soon.

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http://www.investopedia.com/stock-analysis/071613/even-when-cocacola-stumbles-it-does-okay-ko-pep-kof-bud.aspx