Monster Beverage's $2 Billion Question

• Monster Beverage Corporation MNST shares are down almost 6 percent after peaking at $155.81 on August 3.
• UBS analyst Stephen Powers maintained a Buy rating for the company, with a price target of $166.
• Powers expects Monster Beverage’s share repurchase to be delayed to 4Q15 or 1Q16.

Analyst Stephen Powers said that Monster Beverage’s cash in hand increased significantly, from $0.9 billion at the end of FY1Q15 to $2.9 billion at the end of FY2Q15. This increase is attributable to cash paid by The Coca-Cola Co KO at the close of its recent transaction.

Monster Beverage has the option to use the spare cash to reinvest in organic growth, pursue M&A, repurchase shares or pay dividends. In case the company opts for share buyback, it is likely to do so in FY4Q15 or 1Q16.

Although there are no apparent constraints hindering the decision on an optimal buyback strategy, certain deal-related peculiarities related to the transaction with Coca-Cola could be the cause of the delay.

Powers added that Monster Beverage would most likely opt for an ASR or tender offer. The EPS estimate for FY15 has been reduced from $3.02 to $2.98 to reflect the delay in the assumed buyback and the consequent higher share count.