Walmex Upgraded to ‘Overweight’ at Morgan Stanley

By Shiyin Chen

July 9 (Bloomberg) -- Wal-Mart de Mexico SAB, Latin America’s largest retailer, was upgraded at Morgan Stanley, which cited the company’s ability to control costs and the prospects for improving operating momentum.

Walmex, as the company is known, was raised to “overweight” from “equal-weight,” Morgan Stanley analysts led by Lore Serra wrote in a report today. The company’s American depositary shares may rise to $35 apiece by the middle of 2010, they added.

Walmex slipped 1.8 percent to $28 yesterday, trimming its gains this year to 3.7 percent. Second-quarter profit rose 16 percent to 3.8 billion pesos ($281 million) on higher sales related to the swine-flu outbreak.

“Second-quarter results, released last night, mark two consecutive quarters of strong expense control, a positive sign,” the analysts wrote. “Valuation seems reasonable relative to the retailer’s medium-term growth potential.”

Revenue climbed 11 percent to 64 billion pesos, the Mexico City-based company said in an e-mailed statement yesterday.

Walmex benefited in April and May as consumers stocked up on food and medical supplies amid “panic buying” following the swine-flu outbreak, which brought the country to a standstill, said Raquel Moscoso, an analyst at IXE Grupo Financiero SA in Mexico City.

The company was projected to post profit of 3.6 billion pesos, according to the median estimate of six analysts surveyed by Bloomberg.

Walmex said that sales at stores open at least one year dropped 0.1 percent in June, compared with the year-earlier period, dragged by a 2.2 percent decline in the value of the average purchase. The company’s banking unit posted a loss of 133 million pesos for the quarter.

Wal-Mart Stores Inc., the world’s biggest retailer, owns two-thirds of Walmex.

To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net