Are Investor Concerns On Monster Beverages Misplaced?

BMO reiterated its Outperform rating on the shares of Monster Beverage Corporation MNST saying investors' concerns of sales growth deceleration in the United States appear misplaced.

The bullish comments from BMO come after a note from Wells Fargo’s Bonnie Herzog discussing whether Monster Beverage could return to double-digit, top-line growth in the United States soon, if ever.

Sales Growth Expectations

The company recently indicated that fourth-quarter sales growth is expected to be in line with previously reported October sales trends of 12.3 percent, largely in line with BMO and consensus expectations.

“We gained renewed confidence in MNST's attractive sales and earnings growth outlook, given management's upbeat assessment of brand Monster's roll-out in China, brand Mutant's encouraging launch in the U.S., a stronger innovation pipeline in 2017,” BMO analyst Amit Sharma wrote in a note.

Headwinds

However, the analyst acknowledged that Java Monster production constraints, which are expected to normalize in the next two quarters, would hurt fourth-quarter sales by $20 million.

Tailwinds

Despite a relatively slow buildup, Sharma noted that brand Mutant is tracking ahead of his expectations ($50 million–$60 million sales in 2017).

On the China front, Sharma projects the region’s sales could exceed $125 million by 2018 — contributing nearly 350 bps to its sales growth.

The analyst is also upbeat on the prospects of Monster’s upcoming new products such as Hydro, Café Monster, mango-flavored Juice Monster and a complete refresh of brands acquired from The Coca-Cola Co KO.

In addition, Sharma is positive on Monster’s recent multiyear sponsorship agreement with Nascar and Tiger Woods, despite its negative impact on near-term margins. The analyst expects that such deals would attract new consumers.

At last check, shares of Monster Beverage had gained 4.06 percent to $44.86. Sharma has a price target of $55 on the stock.

Posted In: Amit SharmaBMOAnalyst ColorLong IdeasNewsPrice TargetReiterationAnalyst RatingsMoversTrading Ideas

Ad Disclosure: The rate information is obtained by Bankrate from the listed institutions. Bankrate cannot guaranty the accuracy or availability of any rates shown above. Institutions may have different rates on their own websites than those posted on Bankrate.com. The listings that appear on this page are from companies from which this website receives compensation, which may impact how, where, and in what order products appear. This table does not include all companies or all available products.

All rates are subject to change without notice and may vary depending on location. These quotes are from banks, thrifts, and credit unions, some of whom have paid for a link to their own Web site where you can find additional information. Those with a paid link are our Advertisers. Those without a paid link are listings we obtain to improve the consumer shopping experience and are not Advertisers. To receive the Bankrate.com rate from an Advertiser, please identify yourself as a Bankrate customer. Bank and thrift deposits are insured by the Federal Deposit Insurance Corp. Credit union deposits are insured by the National Credit Union Administration.

Consumer Satisfaction: Bankrate attempts to verify the accuracy and availability of its Advertisers' terms through its quality assurance process and requires Advertisers to agree to our Terms and Conditions and to adhere to our Quality Control Program. If you believe that you have received an inaccurate quote or are otherwise not satisfied with the services provided to you by the institution you choose, please click here.

Rate collection and criteria: Click here for more information on rate collection and criteria.