Will Monster Beverage Gain from International Expansion?

On May 18, we issued an updated research report on Monster Beverage Corporation MNST.

On Apr 29, 2016, Monster Beverage reported impressive first-quarter 2016 results. First quarter adjusted earnings of 80 cents per share increased 25% year over year owing to lower tax rate and strong revenues. Net sales of $680.2 million increased 8.5% year over year driven by higher international sales despite steep currency headwinds.

Monster Beverage started 2016 on a positive note after delivering dismal results in 2015. The company reported strong gross margin expansion through 2015 and first quarter 2016 on the back of price increase, strong sales of new products and a favorable segment mix.

Moreover, with the implementation of The Coca-Cola Company KO deal, Monster Beverage is aggressively expanding in the international market, supported by strong demand in the energy drink category. The company is in the process of launching Monster in China later this year in partnership with Coca-Cola System, which we believe is good strategic move and should drive sales and profits further. Also, the acquisition of American Fruits and Flavors on Apr 1, 2016, is encouraging as it stabilizes the flavor supply for the company.

Going ahead, Monster Beverage has several new product launches lined up for 2016. In the first quarter of 2016, the company launched Gronk energy drink and Salted Caramel Java Monster. The company intends to launch a new Mutant, a refreshment energizer in the third quarter of 2016. The introduction of these new products will also benefit from the broader distribution network as a result of the Coca-Cola deal.

However major headwinds including unfavorable currency translations and the transitional impact of the Coca-Cola deal continue to hurt profits. Given its international exposure, the company is exposed to global concerns including weakness in the Brazilian and Mexican market.

Monster Beverage has a Zacks Rank #3 (Hold).    

Stocks to Consider

Some better-ranked stocks in the consumer discretionary sector include Primo Water Corporation PRMW and  Molson Coors Brewing Company TAP. Both the companies sport a Zacks Rank #1 (Strong Buy).

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