Tiendas BBB (3B), Mexico’s largest discount food chain, has strong growth potential, according to JPMorgan. 3B — short for “bueno, bonito y barato,” or “good, nice and cheap” — is “good, nice and high growth with solid returns,” according to analyst Joseph Giordano. He initiated coverage on the stock with an overweight rating and a $30 price target, implying 43% upside potential from Tuesday’s close for shares traded in the U.S. Compared to other markets such as Colombia, Turkey and Germany in which hard discount stores have a penetration rate of 20% or higher, the rate stands at only 2% in Mexico, said Giordano. That means 3B, which is already among the largest discount food retailers in Mexico, has room to boost store productivity. “We see there is material room (and track record) for growth with a high return format (+30% ROIC in mature stores) – marked by negative working capital needs – that tends to be complementary to the traditional food retail formats,” Giordano wrote in a Wednesday note. The stock debuted on the New York Stock Exchange on Feb. 9. Month to date, the stock is up 2.25%. Giordano forecasts 3B reaching a five-year compound annual growth rate of 15%, setting it apart from its local competition. — CNBC’s Michael Bloom contributed to this report.
