Digital Platform Expansion Will Increase Customer Satisfaction

Key Takeaways

• Enhancing digital platforms and loyalty programs aims to improve customer retention, satisfaction, and drive revenue growth through increased sales.
  
• Investments in infrastructure and expansion in high-growth markets improve operational efficiency, support revenue growth, and optimize product mix and pricing strategies.
  
• Adverse weather, supply chain issues, currency volatility, and economic slowdowns are affecting Coca-Cola FEMSA's margins, profits, and revenues.

Catalysts

A franchise bottler, produces, markets, sells, and distributes Coca-Cola trademark beverages in Mexico, Guatemala, Nicaragua, Costa Rica, Panama, Colombia, Brazil, Argentina, and Uruguay.

• Coca-Cola FEMSA is enhancing its digital platform, Juntos+, and its loyalty program, Premier Juntos+, increasing both users and customer satisfaction. This is expected to boost customer retention and sales, ultimately driving revenue growth.
  
• The company is addressing infrastructure bottlenecks by increasing CapEx investments, improving the efficiency of bottling lines, and optimizing distribution networks. These efforts are likely to enhance operational efficiency and potentially expand net margins through cost reductions.
  
• Expansion in high-growth markets like Brazil, Guatemala, and Central America through customer base growth and service level improvements positions the company for future revenue growth.
  
• Initiatives to expand multi-category offerings and leverage advanced AI analytics for pricing and customer insights are likely to support revenue growth and improve net margins by optimizing product mix and pricing strategies.
  
• The recovery and expansion of production capacity at the Porto Alegre plant in Brazil and increasing manufacturing capacity in Mexico are expected to improve operating leverage and reduce costs, potentially boosting earnings in the coming years.

Coca-Cola FEMSA. de Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Coca-Cola FEMSA. de's revenue will grow by 9.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.1% today to 9.1% in 3 years time.
• Analysts expect earnings to reach MX$31.7 billion (and earnings per share of MX$162.48) by about December 2027, up from MX$21.8 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as MX$26.7 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 0.8x on those 2027 earnings, down from 15.9x today. This future PE is lower than the current PE for the US Beverage industry at 24.8x.
• Analysts expect the number of shares outstanding to decline by 2.41% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.78%, as per the Simply Wall St company report.

Coca-Cola FEMSA. de Future Earnings Per Share Growth

Risks

• The negative impact of adverse weather conditions, such as heavy rainfall in Mexico, has led to volume declines, which could affect future revenues if such events become more frequent due to climate change.
  
• Supply chain challenges in regions like Brazil due to capacity issues at the Portalegre plant have led to higher costs and may continue to pressure net margins until the plant resumes full operations.
  
• Currency depreciation, particularly in Argentina and Brazil, has negatively impacted profits due to unfavorable currency translation effects, which could continue to affect earnings if these currencies remain volatile.
  
• Economic slowdowns in regions such as Colombia have resulted in decreased consumer confidence and household expenditures, potentially leading to further volume declines and decreased revenues.
  
• Increased operational expenses, including labor, marketing, and freight, particularly in economically challenging regions, could continue to pressure net margins despite efforts to drive cost efficiencies.

Valuation

• The analysts have a consensus price target of MX$106.65 for Coca-Cola FEMSA. de based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of MX$195.0, and the most bearish reporting a price target of just MX$70.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be MX$347.1 billion, earnings will come to MX$31.7 billion, and it would be trading on a PE ratio of 0.8x, assuming you use a discount rate of 7.8%.
• Given the current share price of MX$81.69, the analyst's price target of MX$106.65 is 23.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.