A Stock that Adds Some Pop to Any Portfolio

By Ryan Guenette - August 8, 2012 | Tickers: KO, KOF, DPS, MNST, PEP | 0 Comments

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Coca-Cola FEMSA (NYSE: KOF) is a Mexican-based company operating as a producer and distributer of a wide array of non-alcoholic beverages, bottled water, and other beverages. Coca-Cola FEMSA’s array of products includes beverages under brands such as Coca-Cola, Sprite, Fanta, Delaware Punch, and Powerade, as well as other trademark beverages of the Coca-Cola Company. Coca-Cola FEMSA operates in Argentina, Brazil, Venezuela, Colombia, Panama, Costa Rica, Nicaragua, Guatemala, and Mexico. Year to date, Coca-Cola FEMSA is outperforming the market, rewarding its investors with 20.97% gains. So why is the Latin American Coca-Cola better than the original, and does the stock add any pop to a portfolio?

Coca-Cola FEMSA Provides Sparkling Water and Sparkling Growth

In 2009, Coca-Cola FEMSA reported earnings per share of $3.52. In 2013, Coca-Cola FEMSA is set to report earnings per share of $5.74. That represents a 63.09% increase from 2009 earnings to 2013. That puts Coca-Cola FEMSA’s compound annual growth rate (CAGR) at 13%. Not many companies can say they have a growth rate in the double digits. Coca-Cola FEMSA’s growth rate is consistent, except for the slight downtrend from 2010 to 2011, and will act as a catalyst for the stock to make a move upward. The chart below displays Coca-Cola FEMSA’s sales, operating profit, net income, net margin, operating margin, earnings per share, dividend, and rate of dividend (the percentage of net income that is paid out in the dividend) over the coming years.

Doubling the Business over the Course of This Decade

The main advantages Coca-Cola FEMSA has over the Coca-Cola Company are its growth and region of operation. Coca-Cola FEMSA has a presence in emerging markets in Latin America, while The Coca-Cola Company operates in all ranges of economies, stagnant, developed, and emerging. With Coca-Cola FEMSA, the investor is getting a higher focus on high-growth economies. Latin America is the second fastest growing region of the world, behind only Africa, as the chart displays.

Coca-Cola FEMSA’s vision was unveiled in 2011, as the company stated, “In 2011, we built strong momentum toward our 2020 goal of doubling our business over the course of this decade… to ~US$ 20 billion of revenues.” In 2011, Coca-Cola FEMSA reported net revenues of $10 billion, leaving room for exactly 100% upside based on Coca-Cola FEMSA’s vision. To execute upon this vision, Coca-Cola FEMSA states they will experience growth through reaching their full operating potential, innovation, and acquisitions. Most recently, Coca-Cola FEMSA has invested heavily in expanding in Mexico, entering the milk and value-added dairy products categories. According to Coca-Cola FEMSA investor’s presentation, this acquisition will add approximately $950 million of revenue to Coca-Cola FEMSA’s company. In conclusion, Coca-Cola FEMSA has a significant leg over the Coca-Cola Company, the region in which it operates in, and is set to double in revenue over the coming decade.

Is Coca-Cola FEMSA Numero Uno?

Compared to some of Coca-Cola FEMSA’s most prominent competitors, such as: Dr. Pepper Snapple Group Incorporated (NYSE: DPS), The Coca-Cola Company (NYSE: KO), PepsiCo Incorporated (NYSE: PEP), and Monster Beverage Company (NASDAQ: MNST), Coca-Cola FEMSA stacks up relatively in-line.

In terms of growth, Coca-Cola FEMSA is bested only by Monster Beverage, while PepsiCo stands out to the downside. All companies pay out a dividend except for Monster, with Coca-Cola FEMSA possessing the lowest yielding dividend and Dr. Pepper Snapple paying out the highest yield dividend. In the fundamental ratio comparison, Monster appears to be trading at a premium, while Dr. Pepper Snapple appears to be the cheapest stock in the industry. When growth is taken into account, Coca-Cola FEMSA appears to be the cheapest stock in the industry, while PepsiCo is trading at a premium. In the net profit margin comparison, The Coca-Cola Company stands out to the upside, while Coca-Cola FEMSA stands out to the downside.

The Foolish Bottom Line

Coca-Cola FEMSA may face increased volatilely over the Coca-Cola Company, as Coca-Cola FEMSA is only about a ninth of the size, and is not even as closely diversified. Despite this fact, Coca-Cola FEMSA is operating in emerging market economies, while the Coca-Cola Company is weighted down by economies such as Europe and the United States, and has a clear cut plan for expanding its business substantially. Coca-Cola FEMSA’s growth strategy should have no problem in carrying the company to its 2020 vision. All in all, Coca-Cola FEMSA is a tremendous ways to play the emerging market economies of Latin America, and is a stock that can add some pop to any portfolio.       

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