Morgan Stanley Upgrades Femsa, Says It's 'Fueled For Growth'

In a report published Monday, Morgan Stanley analysts upgraded their rating on

from Equal-weight to Overweight, with a price target of $106. The company is expected to benefit from three growth drivers. There have been signs of a recovery in consumption in Mexico and Oxxo is well positioned to take advantage of this recovery. According to the analysts, "Oxxo remains the best secular growth story in Mexican retail." The analysts believe the format for Oxxo offers "ample room for growth," and benchmarks for regional store density indicate that the company could see up to 80 percent upside to its current footprint. "We also believe Femsa can leverage its "small-box" expertise to further grow into gas stations, pharmacies, and fast food. These segments are (mostly) fragmented, providing room for a well managed entrant," the analysts said. In addition, the company's risk/reward profile appears more balanced at present and a higher stock valuation is justified by Femsa's high asset returns and growth rate, which is expected at 16 percent EBITDA CAGR for the next three years.