FEMSA (FMX) Looks Encouraging

We are reiterating our Buy recommendation on Fomento Economico Mexicano, S.A. de C.V. also known as FEMSA (FMX - Analyst Report). The company posted positive results for the first quarter 2008, including a good performance in the key Mexican market. Coca-Cola FEMSA's results were particularly encouraging, including good results in Brazil and Argentina and more positive numbers in Mexico. FEMSA Comercio continues to post quite encouraging results, a trend that has been going on for many quarters. Finally, the company was able to compensate higher raw material costs reducing administrative expenses.

Currently, FEMSA is trading at 17.7x our 2008 EPS estimate, slightly above the industry mean and median. The company has a decent medium-term growth potential, since Latin America is one of the most promising areas for the beverage industry, due to favorable demographic trends and the still positive economic outlook. Additionally first quarter results were positive, in-line with the expectation, including a considerable improvement in the key Mexican market. We must not forget that the slow down and a recession in the U.S. economy is indirectly affecting the Mexican economy.

However, the company's geographic diversification is already paying off, since the outlook for Latin America remains promising for the short term. We are particularly encouraged by the continued expansion of the Oxxo chain, the better-than-expected results for Coca-Cola FEMSA (KOF - Snapshot Report) and the positive outlook for the Kaiser brewer in Brazil. All considered we are reiterating our Buy recommendation on FMX, with a P/E multiple 20x on our 2008 earnings estimates. Thus, our target price is $48.25.

Read the full analyst report on FMX.

Read the full analyst report on KOF.

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