Coca-Cola FEMSA could be a good defensive buy for investors looking to hedge against the volatility of the upcoming election, according to Goldman Sachs. The bank upgraded shares of the Mexico-based coke bottler to a buy rating from neutral. The company also set a new 12-month target price at $113.70, up from $108.30. That updated forecast is about 35% higher than the $84.24 level where shares closed on Friday afternoon. Coke FEMSA’s US-traded shares have lost 9% this year and the stock is now valued at a reasonable valuation, according to analyst Thiago Bortoluci. He pointed out that the stock is currently trading broadly in line with its historical average against an attractive earnings setup over the next 12 months. Bortoluci attributed this positive earnings adjustment to inelastic demand for soft drinks in Mexico—that is, a situation where pricing typically has no direct impact on consumption. “Solid industry fundamentals such as high per capita consumption, undisputed preference for coke and a growing middle class in the region provide good visibility into Coke FEMSA’s underlying growth algorithm, where volume growth has been positive in the low single digits, pricing has typically outpaced inflation, and operating leverage has provided some room for [selling, general, and administrative expenses] dilution,” the analyst wrote. So-called SG&A expenses refer to non-productive costs incurred by a company, including marketing and advertising. Despite the fact that the Mexican soft drink market is well established, Bortoluci still sees demand to is growing in the country, supported by continued Innovation of soft drinks and favorable weather conditions Significant growth could also come from more countries in Central and South America The presence of the sale and the expansion of its investments, with 25 new lines expected to be launched throughout Coke FEMSA’s network by 2025, the analyst wrote. Meanwhile, costs will moderate to low single digits in Mexico for the second half of 2024, while prices are already set to rise in the mid single digits. with upside from Brazil and Guatemala), strong pricing and mix and cost moderation could support some margin expansion in 2H2024 and our updated forecasts imply a 3.% average potential upside in Bloomberg consensus EPS for 2024-25E,” Bortoluci said. With that in mind, the analyst now favors Coca-Cola FEMSA as a defensive stock to hedge against the presidential transition in Mexico and the United States presidential election in November. Claudia Sheinbaum, who won Mexico’s presidential election in June, will begin a six-year term on October 1. ” said Bordolucci. “In this environment, we favor stocks with exposure to less discerning industries such as Arca and Coke FEMSA.”
