Why Jefferies Sees Nearly 17% Upside In Monster Beverage

Monster Beverage Corporation MNST is poised to benefit from higher market penetration rates, according to a Monday note from Jefferies.

The Analyst

Jefferies analyst Kevin Grundy maintained his Buy rating on Monster Beverage and increased his price target for the shares from $64 to $72, suggesting roughly 17 percent upside from current levels.

The Thesis

Monster Beverage is benefiting from higher penetration rates, with its recent innovation positioning it well to broaden its consumer base, Grundy said in a note, citing a survey by the firm. (See Grundy's track record here.) 

Inflecting U.S. trends and compelling strategic potential render the risk-reward equation favorable, he said. 

The analyst projects Monster will reach the higher end of 5-7 percent U.S. growth over the next three to five years, with strong near-term momentum likely driving a continuation of mid-single digit percentage growth in the U.S.

"While we see less upside since our 12/16 upgrade (+39 percent YTD vs. +16 percent S&P 500), mid-teens EPS growth at MNST's current multiple, coupled with strategic optionality (i.e., $85 bull case for KO acquisition), drives our Buy rating," Grundy said, giving his rationale for the top-notch rating.

Jefferies said its 2017-2019 estimates are ahead of consensus estimates.

The Price Action

Monster Beverage shares have added about 41 percent year-to-date.

At the time of writing, the shares of the company were rising 1.01 percent to $62.40.

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