On Monday, Morgan Stanley maintained a positive stance on shares of Fomento Economico Mexicano (NYSE:FMX), reiterating an Overweight rating with a $138.00 price target. The firm's analysis acknowledged a recent concern regarding OXXO's same-store sales (SSS) but considered it a temporary setback. They anticipate a return to mid-single-digit SSS growth, although they noted that further information would be beneficial.
The analyst highlighted the robust average ticket and profitability of OXXO, along with the strong performance of FMX's other core divisions, including Health. They pointed out that the valuation of FMX is supportive and the potential return to shareholders remains attractive. The current market position suggests approximately 40% upside potential to their price target of $138 per American Depositary Receipt (ADR).
FMX's third-quarter 2024 results suggest there could be more potential for upside than downside risk to Morgan Stanley's estimates. The firm also noted the favorable returns for investors holding FMX shares, with the company potentially distributing over $2.6 billion to its shareholders through dividends and buybacks, which equates to about 7% of its current market capitalization.
Looking ahead, Morgan Stanley anticipates that FMX may increase its shareholder returns with additional buybacks and dividends towards the end of 2024 or the beginning of 2025. They also expect further details to emerge regarding FMX's convenience store investments in the United States and Brazil, as well as more comprehensive financial disclosure on its Digital ventures, potentially in 2025.
In other recent news, Fomento Económico Mexicano, also known as Femsa, has reported strong financial results for the second quarter of 2024. The company's net consolidated income increased by 75.5% to MXN15.7 billion compared to the same period last year. Total revenues and operating income also witnessed growth, increasing by 12.2% and 15.8%, respectively.
In addition, Femsa has completed a $400 million accelerated share repurchase program and launched a new $600 million program. These are significant recent developments for the company.
Femsa was recently downgraded by JPMorgan from Overweight to Neutral, despite the firm raising its price target. This adjustment reflects Femsa's progress following the divestment of non-core assets, including stakes in Heineken (AS:HEIN), Jetro restaurant cash & carry, and Envoy solutions. However, the company's conservative approach to cash distribution, including dividends and buyback activity, has not met some investors' expectations.
In compliance with SEC regulations for foreign private issuers, Femsa has filed a 6-K form, a document submitted by foreign companies to provide the SEC with an update on significant events that shareholders should be informed about. The company's future plans include focusing on digital expansion and strategic partnerships, with a strong emphasis on expanding in Latin America, particularly in Brazil and Colombia.
InvestingPro Insights
Recent data from InvestingPro adds depth to Morgan Stanley's analysis of Fomento Economico Mexicano (NYSE:FMX). The company's market capitalization stands at $34.99 billion, with a P/E ratio of 26.08, reflecting investor expectations. FMX's revenue growth of 15.9% over the last twelve months as of Q2 2024 aligns with Morgan Stanley's positive outlook on the company's core divisions.
InvestingPro Tips highlight FMX's strong profitability and growth. The company's gross profit margin of 40.32% underscores the robust average ticket and profitability mentioned in the analyst report. Moreover, FMX's revenue has been growing faster than its sector median, supporting Morgan Stanley's view on the company's performance relative to peers.
For investors seeking a more comprehensive analysis, InvestingPro offers 16 additional tips for FMX, providing a deeper understanding of the company's financial health and market position.
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