Monster Beverage Stock: Ready to Resume Winning Streak?

　　While past returns are no guarantee of future returns, the possible exception is energy drink company Monster Beverage (MNST), which is about to resume its 25-year winning streak after a recent pause in gains.
　　Over the past twenty-five years, Corona, Calif.-based Monster Beverage has outperformed not only beverage companies like Coca-Cola (KO), PepsiCo (PEP) and Boston Beer (SAM), but also tech giants Apple (AAPL) and Microsoft ( MSFT), with an annual return of 58%, the highest annual return among U.S. companies in the past 25 years.
　　Monster Beverage’s second-quarter financial results announced on August 4, 2023 were mediocre, and its stock price fell by nearly 5%. However, the company’s growth story is not over yet. Monster Beverage is so good at finding untapped markets that it can keep sales growing, and now it’s adding alcoholic beverages and energy drinks for women, in addition to its products primarily for male consumers.
　　Monster Beverage is also expected to return to the path of high profits again, maintain double-digit profit growth, and the stock price will rise accordingly.
　　Piper Sandler analyst Michael Lavery said: “Monster Beverage’s second-quarter results were lower than expected, but there is nothing concerning about the business or near-term and long-term growth momentum. We like the market for this brand and company.” Positioning.” Lavery recently upgraded Monster Beverage’s stock rating to “buy.”
　　Monster Beverage, which currently has a market value of $60 billion, was formerly known as Hansen Natural, which launched its own energy drink after seeing the explosive growth of Red Bull Energy Drink.
　　RBC analyst Nik Modi said Monster Beverage co-CEOs Rodney Sacks and Hilton Schlosberg wanted to take their company’s drinks Marketed as a lifestyle, not just a beverage product, and largely successful, thanks to longstanding relationships with the Monster Jam truck show, UFC MMA, Nascar and the Premier League. Advertising cooperation. Modi said: “Monster Drink is the next big global brand.”
　　Data from Grand View Research shows that although energy drinks are no longer a new thing, the market is still expected to grow at an annual rate of 8.3% from 2021. of US$86 billion to US$176 billion in 2030, compared with soft drinks’ annual growth of 4.7%. “Early energy drinks were dominated by carbonated drinks, but now energy drink companies are gaining market share by offering other, healthier products,” said Goldman Sachs analyst Bonnie Herzog.
　　Although second-quarter revenue and earnings per share were mediocre (revenue was US$1.86 billion, earnings per share were 39 cents, market expectations were US$1.87 billion and 39 cents respectively), Monster Beverage’s prospects are still good. As Monster Beverages continues to push into new markets, revenue is expected to grow 14% in 2023 and 12% in 2024, in line with historical growth rates, according to FactSet.
　　Monster Beverage introduced at the investor conference in June that the sales of Monster Energy Zero Sugar, which will be launched in the first quarter of 2023, are very good. The company recently launched The Beast Unleashed, an alcoholic soda, and management said on the second-quarter earnings call that the drink has become one of the best-selling new products in 2023.
　　In January 2022, Monster Beverage acquired alcoholic soda company CanArchy Craft Brewery for $330 million. Analysts predict that Monster Beverage’s alcoholic beverage business revenue will be US$324 million in 2024, accounting for 4% of total revenue of US$7.99 billion. Goldman Sachs analyst Herzog called the forecasts “conservative” and said she expects Monster Beverage to become a strong competitor in the alcohol market.
　　Monster Beverage is looking for new growth markets. HSBC analyst Carlos Laboy noted that the company is pushing its beverage business into Latin America, a market that could grow at 20% annually, and in Europe, the Middle East and Africa. The growth rate may reach 10%.
　　Monster Beverage also plans to expand its business beyond male consumers through the acquisition of Bang Energy, Laboy said, because Bang Energy’s consumer group is mainly female. LaBoy recently set a “buy” rating on Monster Beverage’s stock with a price target of $72, which is 26% higher than the recent price of $57.32.
　　”Monster Drinks was primarily marketed to male consumers, but we are now seeing the company develop new brands of its own and acquire brands that can help attract female consumers in the United States, Monster’s largest market,” Laboy said. .”
　　Improving profit margins will be another factor driving share prices higher. After the outbreak of the new crown epidemic, the cost of Monster Beverage increased by nearly 30% in 2021 and 2022, but the company chose not to increase prices, causing the gross profit margin to drop from 60% in 2019 to 50% in 2022. As transportation costs and aluminum prices fall, coupled with the company’s price increases starting in April 2023, margins are expected to begin to rise, with earnings per share expected to rise 37% to $1.54 in 2023 and 17% to $1.54 in 2024. $1.80.
　　Monster Beverage’s price-to-earnings ratio for the next 12 months is 33.7 times, which is not cheap compared with the five-year average price-to-earnings ratio of 30.9 times and the S&P 500’s 18.7 times, but the 33.7 times earnings ratio does not reflect strong earnings growth. However, Monster Beverage’s price-to-earnings-to-growth (PEG) ratio of 1.8x is below the five-year average of 2.5x, making it a much more reasonable valuation by this metric.