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Bull of the Day: Coca-Cola FEMSA (KOF)

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Coca-Cola FEMSA (KOF - Free Report) , a Zacks Rank #1 (Strong Buy), has bucked the market’s downtrend this year, displaying resilience in a difficult environment. Only stocks that are in extremely powerful uptrends are able to weather bear markets so gracefully. KOF continues to benefit from strong demand for its suite of beverage products, with the stock currently trading near 52-week highs.

KOF is part of the Zacks Beverages – Soft Drinks industry group, which ranks in the top 35% out of more than 250 Zacks Ranked Industries. Note how this group has outperformed the market at nearly every turn this year:

Zacks Investment Research
Image Source: Zacks Investment Research

Historical research studies suggest that approximately half of a stock’s price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1.

Because this group is ranked in the top half of all industries, we expect it to outperform the market over the next 3 to 6 months. By focusing on leading stocks within the top 50% of Zacks Ranked Industries, we can dramatically improve our stock-picking success.

Company Description

Coca-Cola FEMSA is a franchise bottler that produces, markets, and sells Coca-Cola trademark beverages. A subsidiary of Fomento Económico Mexicano and based out of Mexico City, the company offers sparkling beverages, juice drinks, coffee, teas, sports and energy drinks, and plant-based items.

KOF provides its products through supermarkets, discount and convenience stores, restaurants, bars, as well as theaters and stadiums. The company also distributes and sells Heineken beer products in its Brazilian territories. 

Earnings Trends and Future Estimates

The beverage company has surpassed earnings estimates in each of the last four quarters, with an average positive surprise of 33.63% over that timeframe. Coca-Cola FEMSA most recently reported Q3 EPS last month $1.03/share, a +30.38% surprise over the $0.79 consensus estimate. Sales of $2.82 billion also exceeded projections.

Analysts are bullish and have been revising future estimates upward as of late. Looking ahead to next year, EPS estimates have increased 7.4% in the past 60 days. The 2023 Zacks Consensus Estimate now stands at $4.21/share, reflecting potential growth of 7.4% versus the $3.92/share projection for this year. Revenues are anticipated to climb 3.63% to $11.45 billion.

Zacks Investment Research
Image Source: Zacks Investment Research

Let’s Get Technical

KOF shares have advanced nearly 50% in the past year. The stock has shown immunity to the year’s volatility while the market continues to hover in a deep correction. This is the kind of stock we want to include in our portfolio – one that is trending well and receiving positive earnings estimate revisions.

StockCharts
Image Source: StockCharts

Notice how the both the 50 and 200-day moving averages (blue and red lines, respectively) are sloping up and have acted as support this year throughout the bullish move. The stock has been consistently making a series of higher highs. With both strong fundamentals and technicals, KOF is poised to continue its outperformance.

Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. As we know, KOF has recently witnessed positive revisions. As long as this trend remains intact (and KOF continues to deliver earnings beats), the stock will likely continue its bullish run.

Bottom Line

In addition to rising earnings estimates for this top-ranked stock, KOF pays a healthy $2.50 (3.67%) dividend and has a market capitalization of $114.4 billion. Robust fundamentals combined with a strong technical trend certainly justify adding shares to the mix.

Backed by a leading industry group and robust history of earnings beats, it’s not difficult to see why this company is a compelling investment. This market winner has broken out to the upside this year and appears primed to continue the bullish run.


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