In the beverage sector, we believe the
better buying opportunities exist among
the Latin American beer and soft drink
companies
 A diversified geographic and product
mix, operating efficiencies, and
strengthening distribution systems
should all contribute to double-digit
profit growth at several of the Latam
beverage companies under coverage
 We are raising our target prices on
Overweight-rated FEMSA, Coca-Cola
FEMSA, and AmBev, and reiterating our
Neutral rating on Grupo Modelo
The beverage industry was challenged by a rising cost
environment in 2007, whether it was higher ingredient,
packaging, energy, or labor costs. Most companies were able
to offset these costs successfully with a good combination of
volume, pricing, and mix improvements, productivity
initiatives, and supply chain efficiencies. We are cautiously
optimistic on the beverage sector, as commodity costs will
likely continue to rise in 2008, but we believe that the betterpositioned
companies can meet or exceed their growth goals
during challenging industry and economic conditions.
Among the beverage companies in our universe, we are most
optimistic about potential growth opportunities for the Latin
American brewers FEMSA and AmBev and the soft-drink
bottler Coca-Cola FEMSA. We believe that each of these
companies should deliver double-digit revenue and EBIT
growth over the near term, based on their strong brand
equity, expanding country mix, strengthening distribution
systems, and ability to take costs out of the system.
We are raising our target prices on Overweight-rated
FEMSA (FMX, USD40.50) to USD49 from USD47, Coca-
Cola FEMSA (KOF, USD53.28) to USD62 from USD54,
and AmBev (ABV, USD79.41) to USD95 from USD90. We
are maintaining our Neutral rating on Grupo Modelo
(GMODELO.C-MX, MXN48.05) and MXN53 target price.