Monster Could Drop To $125...But More Likely Has Slight Upside, Says Susquehanna

Although Monster Beverage Corporation MNST shares may drop to $125, Susquehanna believes that the stock may likely have slight upside. Susquehanna released its latest research report on Monday, maintaining a Neutral rating for MNST with a price target of $144.25. "Sorry to drizzle on this parade," the firm commented. Susquehanna outlined their reservations in the note notwithstanding, acknowledging that the risks are "more to the upside" in the short term. The firm sees Monster Beverage's management outlining distribution expansion plans which include vending, foodservice, China, and the ongoing shift to KO system at the company's annual event on Wednesday. "The US scanner data points to continued mid-teens growth for the Monsterbrand in the US (55 percent of pro forma sales, with the rest comprised 15 percent by Monster overseas, and 30 percent by the energy brands acquired from KO), and we expect management to better articulate the distribution expansion opportunities for the "new" MNST at an investor event on Tuesday afternoon," the firm noted. However if a rally follows, Susquehanna believes we there could be more downside than upside for the stock. "We expect the "Coke" brands to be cannibalized (30 percent of sales); the real upside from "changes in distribution" may only apply to 10 percent of sales; China is more of a long term opportunity for us to factor two years out; share buybacks have been well below expectations, and, the MNST valuation is rich; despite at best low-teens EPS growth," the firm commented. MNST currently trades at 36x its adjusted EV/EBITDA compared with the sector average of 19x.