On Friday, HSBC analyst Carlos Laboy revised the price target for Coca Cola Femsa (NYSE: KOF) to $112.00, down from the previous $115.00, while maintaining a Buy rating on the stock.
Laboy highlighted the success of Coca-Cola FEMSA’s Long-Term Relationship Management (LTRM) agreement with The Coca-Cola Company (NYSE:KO), noting that the partnership is yielding better results than expected.
The collaboration, which began three years ago, aimed to encourage Latin American bottlers to increase investments to develop a data-driven, digitally enhanced marketing and branding system to boost revenue growth.
Coca-Cola FEMSA is currently enhancing its business-to-business platforms with artificial intelligence and analytics. These tools are enabling the company to achieve detailed brand-package-price segmentation at the point of sale.
The analyst pointed out that these digital capabilities give Coca-Cola FEMSA a unique advantage in managing its operations across 2.1 million stores.
Moreover, the company has expanded its distribution to include alcoholic beverages, snacks, candy, and home care products that do not have direct store delivery, targeting the fragmented trade market. The partnership with Campari (LON:0ROY) in Brazil was noted as an example, where Coca-Cola FEMSA signed up for exclusive distribution and increased market development efforts.
Laboy also mentioned that Coca-Cola FEMSA earns a margin of 15%-30% from selling and distributing top-selling brands from other companies, which is higher than typical wholesaler margins. The growing demand for Coca-Cola products and the addition of other products have led to a doubling of return on assets (ROA) since 2020.
"In other recent news, Coca-Cola FEMSA has reported robust growth in its second-quarter 2024 earnings, with consolidated volumes increasing by 7.5% year-on-year. Total revenues grew by 13.1%, reaching MXN 69.5 billion, and gross profit rose by 17.2% to MXN 32 billion. A notable achievement was the record volume growth in Mexico, reaching 600 million unit cases.
In addition, the company has opened a new distribution center in Funza, Bogota and has hedged a significant portion of its exposure to dollarized raw materials for 2024 and the first half of 2025.
Simultaneously, Coca-Cola FEMSA has met its sustainability performance target for water usage, achieving a water use efficiency ratio of 1.36 liters per liter of beverage produced.
This accomplishment, verified by an independent external verifier, ensures that there will be no change to the interest rate of the sustainability-linked bonds for the period starting September 19, 2024.
The company has invested $17.42 million in 2022 and 2023 to enhance water efficiency across its operations, leading to a 21% improvement in water usage efficiency since 2016.
These are among the recent developments for Coca-Cola FEMSA, which also plans to create 15% additional manufacturing capacity by the end of 2025 and has attracted 750,000 participants in Mexico through its Juntos+ loyalty program."
InvestingPro Insights
In light of HSBC analyst Carlos Laboy's recent assessment and price target revision for Coca-Cola Femsa (NYSE: KOF), InvestingPro data and tips provide further context for investors considering KOF's stock. With a market capitalization of $19.26 billion, KOF's solid financial footing is reflected in its impressive gross profit margin of 45.66% over the last twelve months as of Q2 2024. This financial health is complemented by a substantial revenue growth of 10.02% during the same period, underscoring the company's expanding operations.
InvestingPro Tips indicate that KOF has not only raised its dividend for 5 consecutive years but has also maintained dividend payments for 21 consecutive years, demonstrating a strong commitment to returning value to shareholders. Additionally, the company operates with a moderate level of debt, which aligns with the strategic expansion efforts mentioned by Laboy, such as the diversification into alcoholic beverages and other products. Analysts predict the company will be profitable this year, a sentiment supported by a profitable track record over the last twelve months.
For investors seeking additional insights, InvestingPro offers more tips on Coca-Cola Femsa, highlighting its status as a prominent player in the Beverages industry and providing a nuanced view of its valuation with a high P/E ratio relative to near-term earnings growth. To explore these additional insights, investors can visit https://www.investing.com/pro/KOF, where a total of 8 InvestingPro Tips are available for a deeper analysis.
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