Fomento Economico Mexicano S.A.B. de C.V. FMX, also known as FEMSA, has recently provided a comprehensive outline of its future capital allocation, consistent with its FEMSA Forward strategy initiated in February 2023. The company’s capital allocation strategy centers on augmenting long-term intrinsic per-share value.
Armed with an arsenal of promising investment opportunities, the company is gearing up to inject a substantial amount of capital into core organic growth projects, primarily within Mexico. With a significant economic presence, FEMSA is one of Mexico’s most substantial employers and taxpayers.
Over the next five years, FEMSA anticipates investing more than Ps. 237,000 million in core organic growth initiatives, with a significant portion of Ps. 170,000 million designated for Mexico, underscoring the company’s steadfast commitment to its origins. Furthermore, FEMSA is poised to return capital to shareholders following successful FEMSA Forward-related divestments and considering anticipated organic and inorganic capital requirements.
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Key Components of the Capital Allocation Strategy
FEMSA’s capital allocation strategy pivots on several key principles and parameters designed to maximize shareholder value while ensuring prudent financial management. The company prioritizes organic investments within established business models, targeting returns exceeding the cost of capital with a commensurate level of risk. Additionally, inorganic investments are scrutinized based on strict financial criteria, emphasizing value creation and cash flow generation to align with strategic objectives.
FEMSA aims to return nearly six percent of its current public market value to shareholders over the next two to three years through dividends and share buybacks, emphasizing the optimization of per-share value accretion. The predominant principle is to avoid maintaining idle capital on the balance sheet, with a focus on reaching and maintaining a 2x Net Debt/EBITDA ex-KOF objective to ensure financial prudence.
Return of Capital Initiatives for 2024
FEMSA’s capital allocation plans for 2024 include a combination of dividends and a multi-year share buyback program, reflecting the company’s commitment to rewarding shareholders while maintaining financial flexibility. The company plans to propose the following initiatives at the 2024 Annual Shareholders Meeting, to be held on Mar 22, 2024.
FEMSA expects to increase ordinary dividends by 20% compared with 2023, disbursed through four quarterly installments. It also plans to pay an additional dividend, over and above the approved ordinary dividends, which is likely to be distributed in four quarterly installments. The company also expects to double the maximum share buyback capacity from the existing authorization, which underscores FEMSA’s confidence in its long-term value proposition.
Medium-Term Capital Allocation Plan
Moving forward, FEMSA remains committed to utilizing a mix of share buybacks and additional dividends in the medium term. This strategic approach, focused on per-share value accretion and maintaining optimal leverage levels, underscores the company’s unwavering dedication to enhancing shareholder returns while upholding financial prudence.
Conclusion
FEMSA’s detailed capital allocation plans underscore its proactive stance toward value creation, financial stewardship, and shareholder engagement. By prioritizing organic growth, prudent investments, and robust shareholder returns, FEMSA continues to cement its position as a stalwart in the Mexico market while delivering sustained value to its shareholders.
Shares of the Zacks Rank #1 (Strong Buy) company have rallied 50.1% in the past year compared with the industry‘s growth of 5.5%.
Other Stocks to Consider
We have highlighted three other top-ranked stocks from the Consumer Staple sector, namely The Boston Beer Company SAM, Molson Coors TAP, and Lamb Weston LW.
Boston Beer currently sports a Zacks Rank #1. SAM has a trailing four-quarter negative earnings surprise of 77.7%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Boston Beer’s current financial-year earnings suggests growth of 2.7%, from the prior-year level. The consensus mark for SAM’s earnings per share (EPS) has declined 1.2% in the past 30 days.
Molson Coors currently has a Zacks Rank #2 (Buy). TAP has a trailing four-quarter earnings surprise of 37.2%, on average.
The Zacks Consensus Estimate for Molson Coors’ current financial year’s sales and EPS suggests growth of 0.7% and 2.8%, respectively, from the year-ago period’s reported figures. The consensus mark for TAP’s EPS has moved up 1.6% in the past seven days.
Lamb Weston has a trailing four-quarter earnings surprise of 28.8%, on average. LW currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for Lamb Weston’s current financial-year sales and EPS suggests growth of 28.3% and 26.9%, respectively, from the year-ago period’s reported figures. The consensus mark for LW’s EPS has moved up 0.5% in the past 30 days.
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Fomento Economico Mexicano S.A.B. de C.V. (FMX) : Free Stock Analysis Report
Molson Coors Beverage Company (TAP) : Free Stock Analysis Report
The Boston Beer Company, Inc. (SAM) : Free Stock Analysis Report
Lamb Weston (LW) : Free Stock Analysis Report
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