Will Regulatory Issues Hold Monster Back in 2013?
Since the 1997 debut of Red Bull in the U.S., energy drinks have provided college students, truckers and other sleep deprived individuals an alternative way to get an energy boost beyond the traditional go-to coffee mug.
Other companies, including Monster Beverage (NASDAQ: MNST), were quick to follow Red Bull's lead, jumping on the energy drink bandwagon. However, in recent years, several companies -- most notably Monster -- have come under increasing scrutiny due to health concerns and claims of false advertising.
To put it bluntly, 2012 wasn't a good year for Monster in the public eye. In October, there were reports that the FDA was investigating the deaths of consumers who drank Monster Energy drinks. A Maryland family went so far as to file a wrongful death suit in California, WebMD notes.
Several members of Congress went public with concerns over the company and industry in general. Senators Dick Durbin (D- IL) and Richard Blumenthal (D-CT) sent three letters expressing concerns about both Monster and 5-Hour Energy to the FDA from September through November.
Representative Edward Markey (D-MA) sent a letter to the FTC in late November regarding deceptive advertising in the industry, as well.
According to Australian newspaper Illawarra Mercury , University of Wollongong Professor Sandra Jones has called for the ban of all energy drinks. Her call is based on her own research demonstrating sicknesses, heart attacks and seizures in teens who consume alcoholic energy drinks. If her call gains traction, Monster, could be exposed to downside pressure.
Still, sell-side analysts remain largely unfazed. Of analysts surveyed by Yahoo Finance, five have a "Buy" or "Strong Buy" rating, three have a "Hold" and only one believes the stock will underperform.
Also, despite a bad year in the media for the company and industry as a whole, Monster's stock is up over 14 percent over the past year. This speaks to the company's ability to not only weather the storm just far, but to succeed in spite of it.
What's more, the FDA recently signaled there are no imminent plans to take action against the company.
The battle against Monster and the energy drink business could escalate in 2013 as Congress and U.S. regulatory authorities pay increasing attention to related advertising and health issues.
Still, Monster is a fairly high beta name and is far removed from its recent highs. Thus, if the market continues to rally higher, Monster could be a name investors look to in order to outperform the broader market indicies.
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