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Here's Why You Should Hold on to FEMSA (FMX) Stock for Now
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Fomento Economico Mexicano S.A.B. de C.V. (FMX - Free Report) , alias FEMSA, is one stock worth holding on to, given its continued focus on enhancing customer experiences through digital and technological advancements. The company is also poised to benefit from its growth via acquisition strategy. Also, momentum in FEMSA Comercio’s Health division has been a tailwind in the pandemic-led environment.
Moreover, FEMSA has exposure in various industries, including beverage, beer and retail, which gives it an edge over its competitors. The company participates in the beverage industry through Coca-Cola FEMSA (KOF - Free Report) , which is the world’s largest franchise bottler for Coca-Cola (KO - Free Report) products. In the beer industry, it enjoys a notable position with its 14.76% stake in Heineken (HEINY - Free Report) , a leading brewer, with operations in 70 countries.
Moreover, its share in the retail space relates to the operation of various small-format store chains, including OXXO, through its FEMSA Comercio subsidiary. Apart from these, FEMSA provides logistics, point-of-sale refrigeration solutions and plastic solutions to its business units and third-party clients through its FEMSA Strategic Businesses subsidiary.
Gains from the aforementioned positives are not only reflected in FEMSA’s stock performance but also its first-quarter 2021 results. The company reported better-than-expected earnings in first-quarter 2021 on the improved top line and lower interest expenses despite soft margins. Moreover, FEMSA’s first-quarter results reflected sequential gains across most of its segments compared with the fourth quarter of 2020.
In the past three months, shares of the Zacks Rank #3 (Hold) company have gained 11.6% compared with the industry’s growth of 1.9% and the Zacks Consumer Staples sector’s rise of 3.9%.
In the past seven days, the company’s estimates for 2021 and 2022 earnings per share have moved up 0.3% and 0.6%, respectively. For 2021, its earnings estimates are pegged at $2.93 per share, suggesting significant growth from 12 cents reported in the year-ago quarter.
Now let us discuss at length why you should hold on to this stock.
We suggest holding on to the FEMSA stock on its solid fundamentals and robust current business trends. The company continues to focus on offering customers more options to make contactless purchases by intensifying digital and technology-driven initiatives across operations.
The company’s Coca-Cola FEMSA business is leading the way with its omni-channel business, while FEMSA Comercio is progressing with the adoption of digital initiatives. Within its OXXO store chains, the company is on track with investing in digital offerings, loyalty programs and fintech platforms to evolve stronger after the pandemic and over the long term.
Additionally, FEMSA is on track with its expansion plans, having fortified its presence in the specialized distribution industry in the United States, with the acquisition of two independent specialized distribution businesses. The two companies acquired as part of the deal are Spartanburg, SC-based Southeastern Paper Group, Inc. and Wichita, KS-based Southwest Paper Company, Inc. These companies generated annual revenues of nearly $380 million as of September 2020. FEMSA’s acquisition transaction with the companies is in sync with its strategy of creating a national distribution platform.
The company’s venture in the specialized distribution industry relates to its plan of investing in adjacent businesses, which can leverage capabilities across different markets, providing an opportunity for attractive growth and risk-adjusted returns.
With the presence of its OXXO business and other retail operations, the company has become an expert in the organization and management of supply chains and distribution systems. Notably, FEMSA serves large numbers of businesses and retail customers through millions of interactions in different industries. Further, the latest transaction is likely to complement its investment in WAXIE Sanitary Supply (“WAXIE”) and North American Corporation in March 2020. This marked the company’s entry into the U.S. specialized distribution industry, which covers a wide variety of sectors, including fresh and frozen products, decoration, DIY, office supplies, furniture, and stock clearance.
Further, the company is on track with expansions to enhance its portfolio. FEMSA Comercio’s agreement with SMU, S.A. in October 2020 to acquire the latter’s OK Market store chain is likely to help FEMSA bolster its market footprint in Chile. Its earlier acquisitions of a minority stake in Jetro Restaurant Depot, AGV; a 40% stake in Grupo Socofar; and the joint venture with Raízen reveal its commitment to invest in the expansion of core businesses.
Possible Deterrents
Despite the positive business trends, the company is not free from the COVID-related impacts. FEMSA Comercio’s Proximity Division continues to witness soft trends, owing to reduced traffic at stores and prevailing restrictions. Notably, total revenues for the segment declined 4.8% year over year.
Moreover, FEMSA Comercio’s Fuel Division remains the most exposed to the current coronavirus situation due to reduced mobility and social distancing, which led to lesser vehicle utilization. The effects of these were visible on the segment’s results in the first quarter, wherein total revenues declined 21.4%. Further, a fall in the average volume due to the pandemic-led reduced mobility affected same-station sales.
FEMSA also continued to witness margin pressures in the first quarter of 2021, owing to operating deleverage due to the pandemic across some segments. Consolidated gross margin contracted 10 basis points (bps), owing to gross margin contraction of 110 bps at Coca-Cola FEMSA, partly offset by margin expansion of 50 bps at FEMSA Comercio’s Health and 10 bps at Fuel Divisions as well as even margins at FEMSA Comercio’s Proximity Division.
Meanwhile, consolidated operating margin contracted 10 bps, driven by operating margin contraction of 110 bps at FEMSA Comercio’s Proximity and 170 bps at Fuel Divisions on operating deleverage due to the pandemic. This was partly negated by margin expansion at Coca-Cola FEMSA and FEMSA Comercio’s Health Division. On an organic basis, operating income was down 2.4%.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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Here's Why You Should Hold on to FEMSA (FMX) Stock for Now
Fomento Economico Mexicano S.A.B. de C.V. (FMX - Free Report) , alias FEMSA, is one stock worth holding on to, given its continued focus on enhancing customer experiences through digital and technological advancements. The company is also poised to benefit from its growth via acquisition strategy. Also, momentum in FEMSA Comercio’s Health division has been a tailwind in the pandemic-led environment.
Moreover, FEMSA has exposure in various industries, including beverage, beer and retail, which gives it an edge over its competitors. The company participates in the beverage industry through Coca-Cola FEMSA (KOF - Free Report) , which is the world’s largest franchise bottler for Coca-Cola (KO - Free Report) products. In the beer industry, it enjoys a notable position with its 14.76% stake in Heineken (HEINY - Free Report) , a leading brewer, with operations in 70 countries.
Moreover, its share in the retail space relates to the operation of various small-format store chains, including OXXO, through its FEMSA Comercio subsidiary. Apart from these, FEMSA provides logistics, point-of-sale refrigeration solutions and plastic solutions to its business units and third-party clients through its FEMSA Strategic Businesses subsidiary.
Gains from the aforementioned positives are not only reflected in FEMSA’s stock performance but also its first-quarter 2021 results. The company reported better-than-expected earnings in first-quarter 2021 on the improved top line and lower interest expenses despite soft margins. Moreover, FEMSA’s first-quarter results reflected sequential gains across most of its segments compared with the fourth quarter of 2020.
In the past three months, shares of the Zacks Rank #3 (Hold) company have gained 11.6% compared with the industry’s growth of 1.9% and the Zacks Consumer Staples sector’s rise of 3.9%.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In the past seven days, the company’s estimates for 2021 and 2022 earnings per share have moved up 0.3% and 0.6%, respectively. For 2021, its earnings estimates are pegged at $2.93 per share, suggesting significant growth from 12 cents reported in the year-ago quarter.
Now let us discuss at length why you should hold on to this stock.
We suggest holding on to the FEMSA stock on its solid fundamentals and robust current business trends. The company continues to focus on offering customers more options to make contactless purchases by intensifying digital and technology-driven initiatives across operations.
The company’s Coca-Cola FEMSA business is leading the way with its omni-channel business, while FEMSA Comercio is progressing with the adoption of digital initiatives. Within its OXXO store chains, the company is on track with investing in digital offerings, loyalty programs and fintech platforms to evolve stronger after the pandemic and over the long term.
Additionally, FEMSA is on track with its expansion plans, having fortified its presence in the specialized distribution industry in the United States, with the acquisition of two independent specialized distribution businesses. The two companies acquired as part of the deal are Spartanburg, SC-based Southeastern Paper Group, Inc. and Wichita, KS-based Southwest Paper Company, Inc. These companies generated annual revenues of nearly $380 million as of September 2020. FEMSA’s acquisition transaction with the companies is in sync with its strategy of creating a national distribution platform.
The company’s venture in the specialized distribution industry relates to its plan of investing in adjacent businesses, which can leverage capabilities across different markets, providing an opportunity for attractive growth and risk-adjusted returns.
With the presence of its OXXO business and other retail operations, the company has become an expert in the organization and management of supply chains and distribution systems. Notably, FEMSA serves large numbers of businesses and retail customers through millions of interactions in different industries. Further, the latest transaction is likely to complement its investment in WAXIE Sanitary Supply (“WAXIE”) and North American Corporation in March 2020. This marked the company’s entry into the U.S. specialized distribution industry, which covers a wide variety of sectors, including fresh and frozen products, decoration, DIY, office supplies, furniture, and stock clearance.
Further, the company is on track with expansions to enhance its portfolio. FEMSA Comercio’s agreement with SMU, S.A. in October 2020 to acquire the latter’s OK Market store chain is likely to help FEMSA bolster its market footprint in Chile. Its earlier acquisitions of a minority stake in Jetro Restaurant Depot, AGV; a 40% stake in Grupo Socofar; and the joint venture with Raízen reveal its commitment to invest in the expansion of core businesses.
Possible Deterrents
Despite the positive business trends, the company is not free from the COVID-related impacts. FEMSA Comercio’s Proximity Division continues to witness soft trends, owing to reduced traffic at stores and prevailing restrictions. Notably, total revenues for the segment declined 4.8% year over year.
Moreover, FEMSA Comercio’s Fuel Division remains the most exposed to the current coronavirus situation due to reduced mobility and social distancing, which led to lesser vehicle utilization. The effects of these were visible on the segment’s results in the first quarter, wherein total revenues declined 21.4%. Further, a fall in the average volume due to the pandemic-led reduced mobility affected same-station sales.
FEMSA also continued to witness margin pressures in the first quarter of 2021, owing to operating deleverage due to the pandemic across some segments. Consolidated gross margin contracted 10 basis points (bps), owing to gross margin contraction of 110 bps at Coca-Cola FEMSA, partly offset by margin expansion of 50 bps at FEMSA Comercio’s Health and 10 bps at Fuel Divisions as well as even margins at FEMSA Comercio’s Proximity Division.
Meanwhile, consolidated operating margin contracted 10 bps, driven by operating margin contraction of 110 bps at FEMSA Comercio’s Proximity and 170 bps at Fuel Divisions on operating deleverage due to the pandemic. This was partly negated by margin expansion at Coca-Cola FEMSA and FEMSA Comercio’s Health Division. On an organic basis, operating income was down 2.4%.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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