Title: Friday POW! — Walmart de México (Walmex / WMMVY): the nearshoring HALO franchise Show: Haymaker — Friday POW! (Pick of the Week) Author: David Hay — The Haymaker Team Date: 2026-03-27 URL: https://haymaker.substack.com/p/friday-pow-4ab Length: written post (PAID), no timestamps Note: Full article body, lightly cleaned (key-highlights bullets and section labels kept; image captions noted inline). Pick is Walmart de México (BMV: WALMEX*; US ADR: WMMVY); prices quoted in Mexican pesos (MX$). The bottom "Buy List" and "Holds/Trims" lists render as images; only the text footnotes are captured ("APA shifted to H/T List", "NTR shifted to Buy List"). --- Key Highlights - Trailing Twelve Months (TTM) revenue of ~1.01 trillion pesos (~$51B USD); P/E of 20.02x trailing, 18x based on 2026 estimates — near multi-year lows - Q4 2025: revenue up 3% to 282.85B pesos; net profit 14.60B pesos, down 3.9% — missed estimates, stock pulled back - Full-year 2025: consistent market share gains across every quarter; nine + consecutive periods beating ANTAD industry benchmark - E-commerce GMV (Gross Merchandise Value) growing 14-19% year-over-year; $6B earmarked for network and digital expansion - 1,500 new stores targeted over five years; 188 opened in the last 12 months alone - USMCA (United States-Mexico-Canada Agreement) supply chain shift from 80% to 60% Chinese sourcing since 2018; targeting 83% domestic sourcing - 2.91% dividend yield; 20%+ return on invested capital; clean balance sheet - Analyst consensus: average price target MX (i.e., peso) $66.32, range MX$54-81; seven Buy, two Sell Walmart de México, known as Walmex, is the dominant retail franchise in Mexico and Central America, with 2,600+ stores across six formats, 32.5% market share in Mexican organized retail, and the infrastructure backbone of consumer staples spending for a country of 130 million people. The company has spent the better part of the last two years investing ahead of the curve via price reductions to hold market share in a soft consumer environment, aggressive store openings (1,500 new units targeted over five years), a $6 billion capital commitment to network expansion and e-commerce, and a supply chain transformation that has cut reliance on Chinese imports from 80% to 60% since 2018. Those investments have pressured near-term margins and kept the stock in a tight range, which is sitting at MX$57.96, well off its 52-week high of MX$67.34, and the overhang from soft Q4 earnings is still fresh. The bull case is that the market is pricing a continuation of near-term margin pressure without giving credit for what Walmex is building: a structurally lower cost, digitally integrated, nearshoring-exposed franchise that is the default beneficiary of Mexico's most powerful long-term macroeconomic tailwind. The Earnings Miss Isn't the Whole Story Walmex's Q4 2025 results looked soft on the surface: net profit fell 3.9% to 14.60 billion pesos, missing the 16.68 billion peso consensus. Revenue grew 3% to 282.85 billion pesos, also short of estimates. The stock has traded sideways to lower since the February 18 report, and Morgan Stanley and Barclays both downgraded the name on near-term margin concerns. We think that reaction is overdone and somewhat misses the point since the margin pressure Walmex experienced throughout 2025 was a management choice, not a structural deterioration. CEO Ignacio Caride and his team made a deliberate decision to invest aggressively in price reductions to hold and gain market share in a consumer environment where the Mexican peso had depreciated, real wages were under pressure, and the consumer was trading down. That strategy worked and Walmex outperformed the ANTAD industry benchmark for nine consecutive periods in 2025, and continued gaining share in both Mexico and Central America. The company sacrificed short-term margin to build long-term competitive position, which is a trade-off we respect. Also, the forward picture is significantly different from the trailing one. Management has guided same-store sales growth of approximately 3.9% for 2026, with the bulk of margin-pressuring investment now behind the company. The One Hallway digital integration initiative, which unifies assortment and fulfillment across formats, is transitioning from build phase to harvest phase. New distribution centers in the Bajío region and Tlaxcala, built on AI-powered logistics, are expected to cut logistics costs 15-20% over time. Walmex's mix of private label, which is more profitable, is pushing toward a mid-20s percentage, representing a meaningful gross-margin contributor at scale. Growth Outlook: Nearshoring Is the Structural Tailwind We think the single most underappreciated driver of Walmex's medium-term earnings power is the nearshoring wave. Mexico attracted $34.3 billion in foreign direct investment in the first half of 2025 alone, up more than 10% year-over-year, with 36% flowing into manufacturing. The consequence for retail is direct: manufacturing wages in northern regions (Monterrey, Ciudad Juárez, Tijuana, Bajío) are running 15-20% above national averages. Retailers in those markets are reporting double-digit same-store sales growth in discretionary categories. Walmex's Bodega Aurrerá and Sam's Club formats are disproportionately positioned in exactly these high-wage, high-growth corridors. The e-commerce opportunity is layered on top of this. Mexico's e-commerce market is projected to grow from $52.6 billion in 2025 to $62.2 billion in 2026, compounding at 18% annually through 2031. Smartphone penetration exceeds 85% of adults and digital wallet adoption is growing at a 21% CAGR. Walmex has committed $6 billion to network expansion and e-commerce infrastructure alongside Amazon's comparable commitment. Essentially, the two most capable retail operators in the market are betting simultaneously that the digital grocery and general merchandise opportunity in Mexico is a big one. Walmex has the physical store density that Amazon cannot replicate quickly, and the brand trust across income segments that a pure e-commerce player cannot match. The USMCA supply chain repositioning adds a third layer… By sourcing 83% of products domestically and reducing Chinese import dependency, Walmex has insulated itself from the tariff volatility that is disrupting competitors and global supply chains. We view this as more of a cost structure story than a risk-management one. Domestic sourcing is more responsive, easier to replenish, and increasingly competitive as Mexican manufacturing capacity grows. The retailer is building a supply chain moat that widens over time. Valuation: A Discount to History and to Peers At MX$57.39, Walmex trades at 19.4x trailing earnings and 18x forward, which is near the low end of its historical range and at a meaningful discount to comparable franchises. FEMSA's retail business (Walmex's biggest competitor), including OXXO, trades at approximately 22x. The discount to its own history reflects the margin-compression cycle and the Morgan Stanley/Barclays downgrades, not a change in the franchise's competitive position. The 52-week range of MX$50.79 to MX$67.34 puts the stock roughly 18% below the top of that range and within striking distance of the 52-week low, which in our view represents an asymmetric setup for a company of this quality. The P/S ratio of approximately 1x is particularly notable for a business with 32.5% market share, 14.5% ROIC, and a structurally growing market. A business of this dominance and this competitive durability trading around 1x sales is the kind of valuation that we think tends to look obvious in retrospect. WMT, the slower growing parent, at least longer term, is trading near 1.4x sales. The analyst consensus target of MX$66.32 implies roughly 20% upside from current levels. The bull case target of MX$81, which requires only a modest multiple re-rating on improving margins, represents 46% upside. The dividend at 2.91% is well covered and growing. The company generates 20%+ return on invested capital consistently and there is no balance sheet risk to speak of. You are being paid to wait for the margin recovery, which management has framed as a 2026 event. Technicals The technical picture reflects the fundamental one: a franchise in a consolidation phase after a pullback, building a base, with the overhang from two analyst downgrades and a Q4 miss working its way through the tape. The stock has held above the MX$50.79 52-week low through a period of genuine fundamental pressure, which suggests institutional support at that level. The MX$55-57 range is current support; a move back through MX$60 on any positive catalyst — a Q1 2026 beat, a positive ANTAD print, any signal of margin stabilization — would confirm the base is forming. The broader context matters because the consumer staples sector in Mexico is relatively insulated from the oil price and Hormuz disruption noise that is dominating global market sentiment. In a period of elevated macro uncertainty, a dominant, defensive franchise with a growing dividend and a well-supported floor is a portfolio stabilizer as much as it is a growth opportunity. Beta of 0.18 against a volatile market reflects the defensive quality of the underlying business. Arguing the Other Side The bear case is real and, as always, we must explore it. Walmex missed Q4 estimates, net income was down year-over-year for multiple quarters in 2025, and management's narrative of "investing for the long term" can only sustain so many consecutive quarterly misses before it becomes a credibility issue. Morgan Stanley's downgrade to Underweight cited exactly this concern by saying that the margin recovery keeps getting pushed to the next quarter. If the Mexican consumer remains under pressure through the first half of 2026, the same-store sales guide of 3.9% may prove optimistic, and another round of earnings misses would test support. Peso depreciation risk is also real since a weaker peso inflates import costs and erodes the purchasing power of the consumer base. The Iran War and the oil shock create a risk-off environment for emerging market currencies, and the Mexican peso is not immune to that. A sustained move weaker in MXN adds a currency headwind on top of an already soft consumer backdrop. For U.S.-dollar investors, FX translation is a factor that needs to be sized and managed. Additionally, while the stock has been basing between $55 and $65 since the start of last year, there is no sign of an up-trend... yet. We are optimistic it will soon hit $65 again, breaking the long downtrend. The obvious caveat is that should the Strait of Hormuz remain closed for months, versus weeks, Walmex is unlikely to be immune to the drag that would exert on its share price. Despite these risks, we feel that at 18x forward earnings, a 2.94% yield, a 14.5% ROIC, and a 32.5% market share, a significant amount of bad news is already baked into the price. The franchise has gained share in every quarter of 2025 and the margin pressure is from investment, not from competitive displacement. Those are very different problems, and the market appears to be pricing them identically. Conclusion So, what are we really investing in here? The dominant consumer franchise in the fastest-growing large retail market in the Western Hemisphere? A nearshoring beneficiary with 1,500 new stores in the pipeline and an e-commerce platform that is only in its second inning? A management team that deliberately sacrificed short-term margins to build a long-term moat, and has the market share data to prove it worked? We'd like to think we're getting all three, and then some. The selloff is a margin-compression story, not a franchise deterioration story, and those two things are priced very differently when the compression ends. The One Hallway integration, the nearshoring tailwind, the USMCA supply chain advantage, and the e-commerce build are all converging in 2026. Walmex at 16.3x forward earnings with a 3% yield and a path to margin recovery is the kind of setup that rewards patience. We are buyers and think this is the kind of "boring" business that sits firmly in the HALO theme that has been outperforming the broader market so far in 2026. The Haymaker Team [Portfolio footnotes, from image-only lists: "Note: APA shifted to H/T List." / "Note: NTR shifted to Buy List."]