Bull Of The Day: Fomento Economico Mexicano

Fomento Economico Mexicano (FMX), a Zacks Rank #1 (Strong Buy), is a defensive staple that has been widely outperforming this year. Through its subsidiaries, the company operates the second-largest independent Coca-Cola bottling group in the world by sales volume, along with the largest convenience store chain in Mexico. FMX shares bottomed out in July of last year, well ahead of the major indexes. The stock is now hitting all-time highs and displaying relative strength as buying pressure accumulates in this market leader.

The diversified beverage company is part of the Zacks Beverages – Soft Drinks industry group, which ranks in the top 17% out of more than 250 Zacks Ranked Industries. Because it is ranked in the top half of all Zacks Ranked Industries, we expect this group to outperform the market over the next 3 to 6 months.

Historical research studies suggest that approximately half of a stock’s price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1. It’s no secret that investing in stocks that are part of leading industry groups can give us a leg up relative to the market. By focusing on leading stocks within the top 50% of Zacks Ranked Industries, we can dramatically improve our stock-picking success.

 

Company Description

Fomento Economico Mexicano operates as a bottler of Coca-Cola trademark beverages. The company produces, markets, and distributes beverages in Mexico, Guatemala, Nicaragua, Costa Rica, Panama, Columbia, Venezuela, Brazil, Argentina, and Uruguay. FMX also operates small-box retail chain stores under the OXXO brand name, as well as retail service stations for fuels, motor oils, lubricants, and care products under the OXXO GAS name in Mexico.

Furthermore, FMX operates drugstores under recognized names such as La Moderna, Cruz Verde, YZA, and Fybeca. The company has expanded its reach and is also involved in the production and distribution of commercial refrigeration equipment, plastic boxes, and food processing and preservation equipment. Additionally, FMX operates food convenience chain stores in Switzerland, Germany, Austria, Luxembourg, and the Netherlands.

 

Earnings Trends and Future Estimates

FMX has built up an impressive earnings history, surpassing earnings estimates in three of the last four quarters. Back in July, the Monterrey, Mexico-based company reported second-quarter earnings of $1.64/share, a 35.54% surprise over the $1.21 consensus estimate. The company has delivered a trailing four-quarter average earnings surprise of 6.12%. Consistently beating earnings estimates is a recipe for success.

Analysts covering FMX are in agreement and have been increasing their earnings estimates across the board. For the current fiscal year, analysts have bumped up earnings estimates by 23.25% in the past 60 days. The 2023 Zacks Consensus EPS Estimate now stands at $5.62/share, reflecting potential growth of 58.31% relative to the prior year. Revenues are projected to climb 31.86% to $44.2 billion.  

(Click on image to enlarge)

Zacks Investment Research

Image Source: Zacks Investment Research

 

Let’s Get Technical

FMX shares have advanced nearly 54% this year. This is the kind of stock we want to include in our portfolio – one that is trending well and receiving positive earnings estimate revisions.

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StockCharts

Image Source: StockCharts

Notice how both the 50-day (blue line) and 200-day (red line) moving averages are sloping up. The stock has been making a series of higher highs. With both strong fundamentals and technicals, FMX is poised to continue its outperformance.

Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. As we know, Fomento Economico Mexicano has recently witnessed positive revisions. As long as this trend remains intact (and FMX continues to deliver earnings beats), the stock will likely continue its bullish run this year.

 

Bottom Line

The future looks bright for this highly-ranked, leading stock. Fomento Economico Mexicano is a defensive staple that has been widely outperforming this year, as its earnings and revenue trends have skyrocketed.

Backed by a leading industry group and impressive history of earnings beats, it’s not difficult to see why this company is a compelling investment. Robust fundamentals combined with an appealing technical trend certainly justify adding shares to the mix.


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