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Friday June 29, 2012
Coca-Cola FEMSA: The real thing
by Paul Goodwin, editor Cabot China & Emerging Markets Report  For our latest new recommendation, we’re taking a walk on the softer side of refreshment, featuring Coca-Cola FEMSA (KOF), a Mexico-based producer and distributor of non-alcoholic beverages. The company has an extensive product lineup that includes Coke, Ciel, Crystal and Dasani waters, and Del Valle, a $1 billion brand with Hi-C, Minute Maid, Nestea, Sprite and many regional brands. The company operates 37 bottling facilities in Central and South America and distributes through a network of 1.8 million retailers across the region. The company is the largest Coca-Cola franchise bottler in the world, and is selling more soft drinks than ever. Its 2010 volume was 2.44 billion unit cases, while trailing year volume hit 2.75 billion unit cases in Q1. (Unit case = 24 servings of 8 ounces each.) In revenue terms, sales have enjoyed double-digit increases in eight of the last nine years. (The exception was 2010, when revenues expanded “only” 9%; growth rebounded to 12% in 2011.) Q1 results included a 30% increase in revenue and a 21% jump in earnings. There aren’t any big secrets to the Coca-Cola FEMSA story. The company is growing organically as per capita consumption of its beverages increases, as well as consolidating regional bottling businesses via acquisition. KOF is actually a growth and income stock, one that’s bought for long-term appreciation and dividends. The stock has appreciated steadily from its low of 26 in early 2009 to its recent price near 125. The stock also pays a dividend, with a forward annual yield of 1.6%. Most of that time has featured moderate rallies punctuated by consolidations or mild corrections. But trading volume in KOF exploded on May 31, and the stock has been on a much higher trajectory since then, roaring to 125 on increased volume. This indicates higher institutional buying. KOF paused in June, consolidating its gains before taking off again. We see the possibility of another consolidation or correction soon. As such, you can either follow our buy recommendation immediately or wait for a pullback of a few points as an entry opportunity. Learn more about this financial newsletter at Paul Goodwin's Cabot China & Emerging Markets Report. Related articles: 
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