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FEMSA (FMX) Downgraded to Strong Sell on Dismal Trends
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Fomento Económico Mexicano, S.A.B de C.V. (FMX - Free Report) , alias FEMSA, is one of the largest beverage companies operating in Latin America. Its exposure to various industries including beverage, beer and retail gives it an edge over its competitors. Further, the company benefits from its presence in the beverage industry through its subsidiary, Coca-Cola FEMSA S.A.B. de C.V. (KOF - Free Report) , which operates as the world’s largest franchise bottler for the products of Coca-Cola Company (KO - Free Report) .
The company enjoys a prominent place in the beer industry, as it owns the second largest stake in Heineken (HEINY - Free Report) , a leading brewer with operations in 70 countries. Moreover, its retail presence extends to the OXXO store operations through its FEMSA Comercio subsidiary.
Despite its formidable presence in various industries, the company’s stock has been suffering for a while now due to its international operations, which expose it to the perils of currency headwinds. The company’s Coca-Cola FEMSA operations is primarily impacted by currency fluctuations.
This leading Latin American beverage company has lost about 16.1% in the past one year, significantly underperforming the Zacks categorized Beverages – Soft Drinks industry’s decline of about 2.6% in the same period.
Furthermore, the company has been witnessing strained margins due to growth of lower-margin businesses. As evidence, in the third quarter of 2016, the gross margin shriveled 270 basis points (bps) to 36.5%, whereas the consolidated operating margin contracted 150 bps to 9.3%. This mainly resulted from the incorporation and growth of lower-margin businesses in FEMSA Comercio’s Health and Fuel divisions along with a decline in Coca-Cola FEMSA’s gross margin.
Apart from this, continued regulatory pressure can lead to significant attrition in the Mexican soda market, which may have a material impact on FEMSA’s business. Moreover, it faces intense competition in the beverage segment from local and regional players. To retain the existing market share, the company may have to reduce its sales prices, which could dent margins further.
These factors have led us to lower our investment rating on the stock to Zacks Rank #5 (Strong Sell).
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Who wouldn't? As of early December, the 2016 Top 10 produced 5 double-digit winners including oil and natural gas giant Pioneer Natural Resources which racked up a stellar +50% gain. The new list is painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. Be among the very first to see it>>
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FEMSA (FMX) Downgraded to Strong Sell on Dismal Trends
Fomento Económico Mexicano, S.A.B de C.V. (FMX - Free Report) , alias FEMSA, is one of the largest beverage companies operating in Latin America. Its exposure to various industries including beverage, beer and retail gives it an edge over its competitors. Further, the company benefits from its presence in the beverage industry through its subsidiary, Coca-Cola FEMSA S.A.B. de C.V. (KOF - Free Report) , which operates as the world’s largest franchise bottler for the products of Coca-Cola Company (KO - Free Report) .
The company enjoys a prominent place in the beer industry, as it owns the second largest stake in Heineken (HEINY - Free Report) , a leading brewer with operations in 70 countries. Moreover, its retail presence extends to the OXXO store operations through its FEMSA Comercio subsidiary.
Despite its formidable presence in various industries, the company’s stock has been suffering for a while now due to its international operations, which expose it to the perils of currency headwinds. The company’s Coca-Cola FEMSA operations is primarily impacted by currency fluctuations.
This leading Latin American beverage company has lost about 16.1% in the past one year, significantly underperforming the Zacks categorized Beverages – Soft Drinks industry’s decline of about 2.6% in the same period.
Furthermore, the company has been witnessing strained margins due to growth of lower-margin businesses. As evidence, in the third quarter of 2016, the gross margin shriveled 270 basis points (bps) to 36.5%, whereas the consolidated operating margin contracted 150 bps to 9.3%. This mainly resulted from the incorporation and growth of lower-margin businesses in FEMSA Comercio’s Health and Fuel divisions along with a decline in Coca-Cola FEMSA’s gross margin.
Apart from this, continued regulatory pressure can lead to significant attrition in the Mexican soda market, which may have a material impact on FEMSA’s business. Moreover, it faces intense competition in the beverage segment from local and regional players. To retain the existing market share, the company may have to reduce its sales prices, which could dent margins further.
These factors have led us to lower our investment rating on the stock to Zacks Rank #5 (Strong Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2017?
Who wouldn't? As of early December, the 2016 Top 10 produced 5 double-digit winners including oil and natural gas giant Pioneer Natural Resources which racked up a stellar +50% gain. The new list is painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. Be among the very first to see it>>