UBS Just Upgraded Monster Beverage To Buy; Here's Why

In a report published Friday, UBS analyst Stephen Powers upgraded the rating on Monster Beverage Corp. MNST from Neutral to Buy, while raising the price target from $148 to $154. The analyst expects the issues facing the company to be temporary, with the long-term growth potential intact. The company's share price has fallen since the Q1 results were announced, driven by concerns regarding the deferral of the closure of the deal with The Coca-Cola Co KO, as well as expectations of "choppiness" in both the domestic and international markets due to the system transition to Coca-Cola's distribution. The analyst believes, however, that these concerns are already "directionally" priced into the stock. "While we think a correction for these factors is fair, we expect them to pass relatively quickly and remain constructive on long-term growth opportunities," Powers stated. According to the UBS report, Monster Beverage's growth in the US is expected to be driven by "ncreases in brand penetration, increases in high frequency drinkers, and a modest increase in the rate of consumption across all user groups." In terms of international growth, "we still believe Red Bull's international off-trade business (inclusive of "value offerings" in Asia) is a realistically achievable benchmark for MNST's business outside the US; we project essential parity in size by 2030," the report said. The confidence in the company's growth prospects were reinforced by recent meeting with Coca-Cola's management, who appeared focused on increasing Monster Beverage's US distribution and expressed optimism regarding the company's "steady progress" internationally. "In the coming weeks, the MNST-KO deal should close; we expect support for the stock from subsequent share repurchases," Powers added.