Mexico Coca-Cola bottler set for 30% growth amid election volatility

Goldman Sachs has upgraded Coca-Cola FEMSA's stock rating from neutral to buy, citing its potential as a defensive investment amid upcoming election volatility in Mexico and the U.S. The bank set a new 12-month target price of $113.70, reflecting a 35% increase from the current share price of $84.24. Analyst Thiago Bortoluci noted that the stock is trading at a reasonable valuation, aligning with its historical average and an attractive earnings outlook for the next year. The positive earnings forecast is attributed to the inelastic demand for soft drinks in Mexico, where consumption remains stable regardless of pricing changes. Bortoluci highlighted solid industry fundamentals, including high per capita consumption, strong brand preference for Coca-Cola, and a growing middle class, which contribute to a favorable growth trajectory for Coke FEMSA. Volume growth is expected to remain positive, supported by ongoing soft drink innovations and favorable weather conditions. Coke FEMSA is also looking to expand its market presence in Central and South America, particularly in Brazil, which presents significant growth opportunities. The company plans to launch 25 new production lines across its network by 2025, enhancing its operational capacity. Additionally, costs are projected to moderate in the latter half of 2024, while prices are set to increase, potentially leading to margin expansion. As Mexico transitions to a new presidential administration with Claudia Sheinbaum taking office on October 1, and with the U.S. presidential election approaching, Goldman Sachs favors stocks in less discretionary industries, positioning Coke FEMSA as a resilient investment choice during this period of uncertainty.