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Monster Jumps 15% As Crackdown Fears Ease

Monster Jumps 15% As Crackdown Fears Ease
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Monster Beverage (NASDAQ: MNST) rose throughout Tuesday's trading session. Sentiment regarding a potential regulatory clampdown on the company's Monster energy drink shifted in the company's favor. The stock closed the day up better than 13 percent at $51.99. According to analysts, the rally in the stock was triggered after the FDA sent a letter to Democratic Senators Dick Durbin of Illinois and Richard Blumenthal of Connecticut. The Senators had called for the federal agency to investigate the health effects of energy drinks.

While the FDA letter said that it is looking at energy drinks more closely, it did not suggest that any action was forthcoming in the immediate future. The FDA also indicated that there is no scientific literature which calls into question the safety of taurine and guarana, two of the ingredients often used in energy drinks.

"We view [the] FDA's response as encouraging and generally in line with our view that any regulatory outcome is likely to be benign," Judy Hong, a beverage analyst at Goldman Sachs, wrote in a note to investors. "We continue to believe the most likely outcome will be increased disclosure and strengthening labeling, which is unlikely to have a material financial impact [on Monster]", Ms. Hong added.

Monster shares have been under pressure after the FDA said in October that it is investigating reports that five people had died since 2009 after consuming the company's energy drink. The company contends that its products are as safe as a cup of coffee.

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