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On Tuesday, BofA Securities adjusted its stance on Becle SAB de CV (CUERVO:MM) (OTC: BCCLF), downgrading the stock to Underperform from its previous rating of Neutral. The firm also significantly reduced the price target for Cuervo shares to P$19.00, down from P$30.00. The revision follows a recent move by US President Trump, who signed an order to impose a 25% tariff on Mexican goods.
The analyst at BofA Securities, Fernando Olvera, expressed concerns over the potential impact of the new tariffs on Cuervo, particularly noting that the company’s US volume, which represents 57% of its total, could be adversely affected. Since tequila must be imported from Mexico due to appellation of origin requirements, the tariffs are expected to hit Cuervo’s operations hard.
Olvera pointed out that the anticipated reduction in volume and the unfavorable regional sales mix might hinder the company’s ability to expand its margins, thereby increasing the operational risks for Cuervo. The decision to downgrade the stock and lower the price target is also influenced by the anticipated weaker fourth-quarter results of 2024 and the outlook for 2025, with a slowdown in US sales volumes expected.
The updated price objective reflects a new, higher Weighted Average Cost of Capital (WACC) assumption and a reduced Price to Earnings (P/E) target ratio to account for the heightened risks. BofA Securities has taken a cautious stance on Cuervo, pending further details on the implementation and effects of the tariff. The firm has yet to incorporate the potential tax into its estimates for Cuervo, highlighting the uncertainty surrounding the situation.
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