Monster Beverage Up to Strong Buy on Improving Momentum - Analyst Blog

On Dec 13, Zacks Investment Research upgraded Monster Beverage Corporation (MNST) to a Zacks Rank #1 (Strong Buy).

Estimates have mostly moved upward since the beverage company reported strong third quarter 2014 results on Nov 6. Monster Beverage's share price has increased about 5% since the company released its third quarter results.

Why the Upgrade?

Monster Beverage's third-quarter 2014 adjusted earnings of 70 cents per share beat the Zacks Consensus Estimate by 2.9% and increased 31.7% year over year on the back of solid margins, better cost leverage, and a lower tax rate.

Despite missing the Zacks Consensus Estimate by a marginal 0.9%, Monster Beverage's third-quarter 2014 net sales of $636 million rose 7.7% year over year, thanks to solid sales increase in both the Direct Store Delivery (DSD) and Warehouse segments.

Net sales of the DSD segment rose about 8% on the back of higher sales volumes of Monster Energy drinks, Ultra and Java Monster lines. Net sales of the Warehouse segment rose about 10.1% driven by higher sales of Hubert's Lemonades and aseptic juices.  

Some of the products that continued to do well in the quarter include Ultra, Monster Energy Ultra Black and original Monster Green energy drink. Brands that did well in the quarter include Juice Monster, Punch Monster energy drinks and Peace Tea Line.

Gross sales outside the U.S. increased 14.3% year over year. The company witnessed 7% increase in sales in Europe, the Middle East and Africa region.

Third-quarter 2014 gross margin rose 170 basis points (bps) attributable to a decrease in cost of some of the raw materials, particularly certain sweeteners, higher prices of 24-ounce Monster Energy brand energy drinks and Peace Tea line and favorable changes in product sales mix.

Operating income increased owing to higher operating income from international operations such as Europe, Mexico and Japan.  Operating margin was 430 bps year over year on the back of solid revenues and lower expenses.

Other Stocks to Consider

Other stocks in the consumer goods industry worth considering include Aramark (ARMK), Dr Pepper Snapple Group, Inc. (DPS), and Keurig Green Mountain, Inc. (GMCR). While Aramark sports a Zacks Rank #1, Dr Pepper Snapple Group and Keurig Green Mountain hold a Zacks Rank #2 (Buy).