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With a growing convenience-store business, the company’s shares are looking attractive.

Coca-Cola is big business, and in Mexico, it’s big business for Fomento Económico Mexicano. Shares of Femsa, as it is known, look ready to pop.

Femsa is a holding company with a near-majority stake in Coca-Cola Femsa, the largest franchise bottler of Coke products in the world by volume, and a growing convenience-store business. The American depositary receipts, which trade under the symbol FMX, have slumped more than 9% this year to a recent $117.60 after Femsa announced the departure of its respected chief financial officer and chief corporate officer in February, events that followed the naming of an acting CEO last July. The Mexican presidential election, which resulted in victory for Claudia Sheinbaum and a sweep of Congress by her left-wing Morena party, pushed the shares another leg lower.

That all seems like an overreaction. Femsa’s bottling business is a solid, steady grower, while the company has been selling nonessential businesses, which will allow it to continue to return cash to shareholders in the form of buybacks and dividends. But the real story is its convenience-store business, which is set to expand in South America and Central America, and perhaps even in Texas. With the stock down from its peak, now looks like a good time to buy in.

“Despite share price volatility around executive departures and elections in Mexico, the long-term growth story remains intact,” says Derrick Irwin, portfolio manager for the Intrinsic Emerging Markets Equity team at Allspring Global Investments. “Shares are trading at a significant discount to our valuation assessment, while the growth opportunity for Oxxo convenience stores…remains excellent.”

Femsa might be best known for the Coca-Cola bottling business. It accounts for just about a third of Femsa’s sales, and while Mexico is its primary market, it has operations throughout Latin America, with products ranging from classic Coke to sugarless beverages and energy drinks. It’s also very profitable: Femsa’s bottling division sports industry-leading earnings before interest, taxes, depreciation, and amortization margins of about 19%.

But the real growth comes from Femsa’s convenience-store business, which operates under the name Oxxo. Every day, one in 10 Mexicans visits one of the more than 23,000 Oxxo locations in that country, and it’s expanding that C-store chain across Latin America, with an eye to ultimately coming to the U.S., as well. Femsa plans to open about 1,000 new stores in Mexico in 2024 alone, a year that has seen its 500 th store open in both Brazil and Colombia. For the U.S., Femsa may set up in Texas and other Southern markets. Given the extremely fragmented state of the industry in the U.S., the economics of convenience stores favor larger, well-funded operators like Femsa that can take market share from smaller rivals.

“Femsa has the best C-store business in the world,” says Richard Cook, co-founder and portfolio manager at Cook & Bynum Capital Management. “The growth potential is massive if the company can replicate its Mexican success in these other countries.”

Femsa’s Oxxo stores have margins of 10%, which Cook says are the highest of any convenience-store operator globally. Moreover, while investors may be worried about an uneven economic outlook for the region, that would not necessarily be as big a headwind for Femsa as for other companies, given that Oxxo has a growing financial-technology component.

“Their outlets are the origination point for an increasing number of cash-to-digital financial transactions, including paying utility bills, topping up mobile phone cards, buying Fortnite V-bucks, and paying for Amazon

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online purchases,” Cook explains. In May, Oxxo and Amazon.com announced an expanded partnership allowing customers to receive packages at Oxxo stores across Mexico.

Femsa will get a chance to show that the story is on track when it reports earnings on July 24. The consensus among analysts calls for earnings per share to be roughly flat this year at $5.41, but jump some 12% in 2025 to $6.05. Revenue is expected to grow in the high-single digits in both years, reaching $51.7 billion by 2026.

All of that cash will help fund Femsa’s continued stock buybacks. Last month, it completed its accelerated $400 million share repurchase plan, replacing it with a new $600 million mandate. It can amply afford to be generous given its divestitures—it’s expected to sell logistics and refrigeration assets this year—and the roughly $2 billion in cash it generates every year. The company has virtually no net debt at the corporate level.

Jefferies analyst Pedro Baptista reiterated a Buy rating on the shares on July 8 and increased his EPS estimates for this year and next to incorporate the buyback plan. Baptista estimates that Femsa will pay shareholders more than $2.7 billion this year, the equivalent of some 7% of its market capitalization, between repurchases and dividends. He expects that it will deliver about $8 billion, or 22% of its market value, over the next three years. Femsa also sports a 0.5% dividend yield. Baptista has a price target of 270 pesos, or $15.25, on Femsa’s local shares, which trade under the ticker FEMSAUBD, up 30% from Wednesday’s close.

Femsa’s ADRs trade at just over 20 times forward earnings, in line with their five-year average. That doesn’t sit right with Allspring’s Irwin, who notes that the multiple is lower than it was before the pandemic, despite the company having higher growth and doing a better job of returning capital to shareholders.

Femsa also trades at a discount to its net asset value, Irwin says. His sum-of-the-parts analysis suggests the company is worth $49.7 billion, compared with the market capitalization of $37 billion, suggesting a 26% discount to its value. The difference between the two “will continue to narrow,” he says, as the company rewards shareholders and builds out its core beverage and C-store businesses.