Goldman Sachs Adds Monster Beverage To 'Conviction Buy' List, Removes Reynolds American

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Goldman Sachs’ Judy E. Hong mentioned that the Consumer Staples sector remains expensive, and there is 5-10 percent downside risk, in case 10-year yields stay below 2 percent, though timing remains uncertain. The analyst added that two potential catalysts to this would be investors becoming more pro-growth or shifting to other defensive sectors like Healthcare.

Hong recommended shifting away from Domestic Defensive names, while embracing the Multinationals, given the more stable forex environment.

Monster Beverage

Analyst Judy Hong maintained a Buy rating for Monster Beverage Corporation MNST, with a price target of $160. She added the company to the Conviction List.

The recent underperformance in Monster Beverage’s stock, which is down 11 percent year-to-date versus a 1 percent decline in the SPX, provides an attractive entry point, the analyst mentioned, adding that the company is poised for accelerating growth and expanding margins.

The company is expected to post robust US sales growth, improving international growth as disruption around distribution transition abates and the distribution partnership with The Coca-Cola Co KO gains traction in new markets.

Monster Beverage’s 2016 EPS is expected to get a 5 percent boost from the company’s potential capital allocation, including a share buyback authorization of $2 billion and the announced acquisition of American Fruits and Flavors.

Reynolds American

Hong maintained a Buy rating for Reynolds American, Inc. RAI, with a price target of $54, while removing the stock from the Conviction List, after a sizeable outperformance and more limited upside to the price target.

“We maintain our Buy rating as we still expect above-average total return potential (9% vs. 2% for the group), but absolute upside appears more limited and we now see greater opportunities elsewhere in our coverage,” the analyst added.

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Posted In: Analyst ColorLong IdeasReiterationAnalyst RatingsTrading IdeasGoldman SachsJudy E. Hong
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