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Ay, Investors Drink To Jose Cuervo!


Image source: Giphy.com

What's going on?

Mexico-based Jose Cuervo, the purveyor of tequila and other spirits, became a publicly traded company on Wednesday (tweet this) at a valuation in excess of $5 billion (a.k.a. it completed an IPO). Cheers!

What does this mean?

Family-owned Jose Cuervo controls about 30% of the global tequila market. In recent years, it has tried to diversify into other products, notably acquiring Bushmills Irish Whiskey from Diageo. Jose Cuervo makes most of its sales outside of Mexico, including in the large US market. Therefore, it’s threatened by the possibility of higher tariffs on goods coming into the US, as proposed by President Trump.

However, any negative impact for Jose Cuervo could be (more than) offset by a weaker peso, which means it can produce tequila for less in US dollar terms and thus possibly lower its US prices.

Why should I care?

The bigger picture: This IPO isn’t really about Mexico.

Jose Cuervo’s stock is listed on the Mexican stock exchange. Some think the fact that such a large IPO happened highlights the moderate recovery that has been occurring in Mexican stocks and the peso over the past few weeks, after a brutal selloff following Trump’s election. However, since Jose Cuervo is such an international company, it’s important not to extrapolate too much about Mexico from Cuervo’s IPO.

For the stock: Jose Cuervo wants to be a growth company.

The company is raising more than $700 million, which it says will be largely spent on growth initiatives (including, perhaps, buying other brands). The tequila market itself is already a growth area, with tequila consumption growing last year in the US at almost three-times the rate of overall liquor growth. In a market of established giants like Diageo, Cuervo is trying to establish a niche as a smaller but faster growing rival.

Originally posted as part of the Finimize daily email.

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