Analyst Note| Nicholas Johnson, CFA |
With narrow-moat Femsa’s largest constituent having already reported heading into its second-quarter earnings, we think investors were zeroing in on (1) the comparable sales trajectory of the proximity business, particularly on a two-year stacked basis, and (2) the outlook for a broader macro recovery across its key territories. The results were laudable, ahead of our expectations on both the top and bottom lines, but the near-term outlook is still uncertain, particularly as coronavirus-induced mobility constraints continue to linger in some countries and the scope of inoculation campaigns remains challenged. We plan to raise our $88 per ADR fair value estimate by a mid-single-digit percentage to reflect time value and strong commercial momentum at Oxxo. The shares have been on a nice run, and while they’re still marginally undervalued relative to our admittedly conservative fair value, we’d still suggest prospective investors wait for a more attractive entry point.