Citi Upgrades Monster Beverage, Sees Pullback Offering An Opportunity

In a report published Monday, Citi analysts upgraded

from Neutral to Buy. The price target was raised from $141 to $155. The company reported its Q1 revenue and EPS below the estimates and the consensus. While the company's sales growth was also below consensus, its international sales declines 2 percent, driven by FX headwinds and uncertainties associated with international distributors. Following the disappointing results for the quarter, Monster Beverage's stock fell about 10 percent. On a more positive note, the increase in gross margin was better than expected, driven by a better product mix and production efficiency, and lower raw material costs. Although the company has not provided the gross sales figure for April, the analysts expect Monster Beverage to work towards matching Red Bull's mid-single-digit price rise in the US, potentially during early Fall. Citi has lowered its near term EPS estimates for the company due to the later than anticipated closing of the transaction with

, increased competition in the U.S. and continuing FX headwinds. However, the analysts have left their long-term EPS estimates unchanged due to "(i) our expectation for robust underlying global category growth; (ii) room for market share expansion for MNST as the brand enters into and expands in new geographies on the back of KO's distribution muscle; and (iii) potential for sharply higher profitability in its int'l business, owing both to scale benefits and improved execution."