Wells Fargo Upgrades Monster Beverage: Yes It's Expensive, But Premium Worth It

• The share price of Monster Beverage Corporation MNST declined 12.06 percent over the past six months although it has appreciated 6.4 percent over the past one year.
• Bonnie Herzog of Wells Fargo has upgraded the rating on the company from Market Perform to Outperform, while raising the valuation range from $139.00 to $141.00 to $159.00 to $161.00.
• Herzog believes that the recent weakness in the share price, along with the company’s accelerating earnings growth offer an attractive entry point for investors.

Analyst Bonnie Herzog explained that the upgrade in the rating was based on the positive results from Well Fargo’s “Beverage Buzz” survey, which indicates that the company’s “U.S. distribution issues have largely been resolved and earnings are poised to reaccelerate in 2016 and beyond.”

Herzog also mentioned that while the stock was still trading at a premium, the valuation was justified in view of the strength of the company’s earnings power in the outer years, along with several near term opportunities that could drive additional earnings upside.

According to the Wells Fargo report, “given the strong, double-digit top-line growth and accelerated earnings growth we expect over the next 5 years as MNST penetrates new markets, particularly China, we think premium valuations are warranted.”

The EPS estimates for FY15 and FY16 have been raised by $0.02 each, while the EPS estimate for FY17 has been raised $0.07.