Wide-Moat Coca-Cola Femsa and Narrow-Moat Femsa Expand With Two-Prong Strategy; Shares Undervalued

Coca-Cola Femsa and parent Femsa are well positioned to ride positive consumption trends across Latin America, thanks to the region's increasing disposable income, favorable demographic trends (rising population with a median age of 31), and underpenetration of branded consumer goods and services. We award a wide moat rating to Coca-Cola Femsa based on strong brand affinity arising from the bottler's symbiotic long-term partnership with wide-moat Coca-Cola and cost advantages from its manufacturing and distribution scale. We assign a narrow moat rating to Femsa (which has a 47% stake in Coke Femsa) as the complexity of managing sprawling retail businesses (over 50% of revenue) across disparate Latin American markets reduces our confidence in the firm’s ability to earn excess returns for more than 20 years.