The 'Buying Opportunity' For Monster Beverage Investors

In a report published Monday, Stifel analyst Mark Astrachan maintained a Buy rating on

, while raising the price target from $165 to $170. The analyst believes that any weakness in the share price would offer an attractive buying opportunity. The analyst expects the company's 2Q15 sales and EPS to be adversely affected by the disruptions, especially in the international markets, associated with the acquisition of brands from

. The results are also expected to be negatively impacted by the 34 million shares issues in conjunction with the closing of the transaction on June 12. "That said, the benefit from owning the Coke energy drink brands for 18 days in the quarter, while selling the low growth and margin warehouse business, will aid sales growth and gross margin by 170bps and 130bps, respectively, partly offsetting the transition impact," the Stifel report stated. Therefore, the analyst expects Monster Beverage to be able to achieve the consensus sales growth expectations for the quarter, along with gross margin of 57 percent, representing 180 bps year on year and 90 bps sequential growth. The EPS is, however, expected to disappoint, driven by the higher share count. According to analyst Astrachan, "[S]hould MNST shares underperform, we would recommend buying given continued strong end-demand in the US, 73 percent of pro forma sales and per scanner data, and the substantial international opportunity." In addition, the analyst expects organic sales growth to accelerate through 1H16, driven by the US and international distribution of Coca Cola brands, and favorable year on year comps. "In the US, we anticipate low double-digit sales growth through 2016 benefiting from continued solid volume growth, an approximate 5 percent price increase to be implemented in September, and gas prices meaningfully below prior year levels," analyst Astrachan stated. For 3Q15, the analyst expects sales growth to be driven by pricing, given the last time that Monster Beverage increased its pricing meaningfully was on January 1, 2008. Gross profit is expected to grow significantly ahead of sales through 1H16, driven by the recently acquired Coca Cola energy brands.