Company Reports

Although not the pioneer in energy drinks, Monster has earned its perch in this attractive category through innovations that resonate with consumers and effective marketing that keeps its core brand top of mind. The long-term strategic alliance with wide-moat Coca-Cola, effective since 2015, further advances Monster’s competitive standing, affording the firm impressive distribution breath and product availability that is hard to match by rivals. As such, we award a narrow economic moat rating for Monster.

We plan to raise our $50 fair value estimate for narrow-moat Monster Beverage by a mid-single-digit percentage to account for strong 2023 results and the time value of money. Increases of 13.1% for revenue and 38.0% for earnings per share in 2023 outpaced our estimates of 12.8% and 34.6% on strong volume expansion and better-than-expected margin gain, reaffirming our confidence in Monster's long-term outlook underpinned by strong brands and the long-term partnership with Coca-Cola. In the coming years, we expect innovations (zero-sugar recipes, new fruit flavors, variety packs, and slim packaging) will continue to drive the bulk of growth in the US. Meanwhile, the firm has multiple levers to pull internationally, including new products, wider distribution, and the rollout of affordable brands Predator and Fury to tap energy drink consumers across emerging markets. Our 10-year projections for high-single-digit annual sales growth and operating margin averaging in the low 30s remain in place. We view the shares, which popped 5% in after-hours trading, as overvalued.

Although not the pioneer in energy drinks, Monster has earned its perch in this attractive category through innovations that resonate with consumers and effective marketing that keeps its core brand top of mind. The long-term strategic alliance with wide-moat Coca-Cola, effective since 2015, further advances Monster’s competitive standing, affording the firm impressive distribution breath and product availability that is hard to match by rivals. As such, we award a narrow economic moat rating for Monster.

Narrow-moat Monster Beverage posted accelerating volume and better-than-expected profit growth in the third quarter, reinforcing our confidence in its long-term prospects underpinned by brand intangibles and the strategic partnership with wide-moat Coca-Cola. Sales grew 14% (on an 11% volume expansion, accelerating from 8% in the first half) and EPS rose 43%, outpacing our estimates for 13% and 25% increases, respectively. We plan to tick up our 2023 forecasts, but our 10-year projections for high-single-digit annual sales growth and operating margin averaging 32% remain in place. As such, our $48 fair value estimate will likely rise by a low-single-digit percentage. We view the shares as fairly valued.

We plan to maintain our $48 fair value estimate for narrow-moat Monster Beverage after absorbing second-quarter results that matched our estimates. Sales grew 12% (or 14% on a currency-neutral basis) and EPS rose 50%, keeping the firm on track to meet our 2023 targets for sales and EPS to grow 13% and 31%, respectively. We see no reason to alter our 10-year projections for high-single-digit annual sales growth and operating margin averaging 32%. Despite our constructive view of Monster’s long-term prospects, anchored by brand intangibles and the long-term partnership with wide-moat Coca-Cola, we see the shares as expensive, trading at a 17% premium to our intrinsic valuation.

We are raising our fair value estimate for Monster Beverage to $48 (from $43), which implies a 2024 enterprise value to adjusted EBITDA multiple of 22 times. The increase is driven by higher interest income estimates over the next 10 years (2% return on cash, versus 0.1% in the prior model) alongside faster growth (7%, versus 4% previously) in earnings before interest (excluding tax) in the five years following the 10-year explicit forecast period, as we anticipate more robust volume expansion.

Although not the pioneer in energy drinks, Monster has earned its perch in this attractive category through innovations that resonate with consumers and effective marketing that keeps its core brand top of mind. The long-term alliance with wide-moat Coca-Cola, effective since 2015, further advances Monster’s competitive standing, affording the firm impressive distribution breath and product availability that is hard to match by rivals. As such, we award a narrow economic moat rating for Monster.

Our $43 per share valuation of narrow-moat Monster Beverage should rise by a mid-single-digit percentage, largely reflecting the time value of money after the company posted first-quarter earnings that suggest it is on pace to meet our full-year targets. The company saw sales and profitability improve in the wake of recent pricing actions taken to cover rising costs with little impact to market share, a dynamic that suggests the pricing power underlying our moat rating is intact. Despite our favorable view of the company’s competitive position, we believe the shares are priced such that they assume perfect execution (particularly challenging considering that Monster is increasingly dependent on less established markets and product lines for growth).

After helping pioneer the U.S. energy drink industry two decades ago, Monster continues to extract outsize growth and stellar profitability from this market. We think that despite relying almost entirely on a Monster trademark that is not easily parlayed into other beverage segments, the firm will continue to innovate in the energy category and expand the range of occasions for which the drinks are consumed. As such, we believe these efforts should collectively support high-single-digit top-line growth longer term.

We don’t expect a material change in our $85 fair value estimate for narrow-moat Monster Beverage after incorporating weaker-than-expected fourth-quarter results. We continue to view Monster’s shares as overvalued, trading at a 15% premium even after a 4% drop in post-market trading.

After helping pioneer the U.S. energy drink industry two decades ago, Monster continues to extract outsize growth and stellar profitability from this market. We think that despite relying almost entirely on a Monster trademark that is not easily parlayed into other beverage segments, the firm will continue innovating in the energy category and expanding the range of occasions for which the drinks are consumed. This dynamic is evidenced by the recently launched Reign brand, and should support high-single-digit growth longer term.

Our $83 per-share valuation of narrow-moat Monster Beverage should not change materially in response to its third-quarter earnings announcement, which included 15% sales growth. The company continues to face cost challenges with respect to ingredients and aluminum cans, but recent price increases are improving the margin picture. We see inflationary pressure as transitory, and still expect mid- to high-single-digit percentage annual sales growth and low- to mid-30s operating margins in the long term. We suggest investors seek a more attractive entry point.

After helping pioneer the U.S. energy drink industry two decades ago, Monster continues to extract outsize growth and stellar profitability from this market. We think that despite relying almost entirely on a Monster trademark that is not easily parlayed into other beverage segments, the firm will continue innovating in the energy category and expanding the range of occasions for which the drinks are consumed. This dynamic is evidenced by the recently launched Reign brand, and should support high-single-digit growth longer term.

Similar to the after-hours trading price reaction, our $86 per share valuation of narrow-moat Monster Beverage should slide by a mid-single-digit percentage in the wake of its disappointing second-quarter earnings announcement. The company came under greater profitability strain that we expected, and its first-half gross margin swoon (down more than 800 basis points to 49%) suggests our estimate of a nearly 4-point full-year shortfall is overly optimistic, despite our view that conditions should improve in the second half. However, the margin pressure stems from supply chain challenges and widespread inflationary pressures that we expect to abate over time, and so we still forecast mid- to high-single-digit percentage annual sales growth and mid-30s operating margins over the long term. We suggest prospective investors await a more attractive entry point.

After helping pioneer the U.S. energy drink industry two decades ago, Monster continues to extract outsize growth and stellar profitability from this market. We think that despite relying almost entirely on a Monster trademark that is not easily parlayed into other beverage segments, the firm will continue innovating in the energy category and expanding the range of occasions for which the drinks are consumed. This dynamic is evidenced by the recently launched Reign brand, and should support high-single-digit growth longer term.

Our $82 per share valuation of narrow-moat Beverage should not change significantly in light of its first-quarter earnings, which suggest it can deliver solid results despite ongoing cost pressures from difficult supply conditions. We expect mid-single-digit top-line growth rates and mid-30s adjusted operating margins over the long term. The shares trade near our valuation, and so we suggest prospective investors await a more favorable entry point.

After helping pioneer the U.S. energy drink industry two decades ago, Monster continues to extract outsize growth and stellar profitability from this market. We think that despite relying almost entirely on a Monster trademark that is not easily parlayed into other beverage segments, the firm will continue innovating in the energy category and expanding the range of occasions for which the drinks are consumed. This dynamic is evidenced by the recently launched Reign brand, and should support high-single-digit growth longer term.

Our $80 per share valuation of narrow-moat Monster Beverage should not change significantly after it reported mixed fourth-quarter results, with the impact of a slightly lower near-term margin outlook offset by the revocation of our prior expectation of a U.S. corporate tax increase. As we attribute the margin pressure to pandemic-related inflation, we do not anticipate changing our long-term outlook materially (mid- to high-single-digit percentage annual sales growth, mid-30s operating margins).

After helping pioneer the U.S. energy drink industry two decades ago, Monster continues to extract outsize growth and stellar profitability from this market. We think that despite relying almost entirely on a Monster trademark that is not easily parlayed into other beverage segments, the firm will continue innovating in the energy category and expanding the range of occasions for which the drinks are consumed. This dynamic is evidenced by the recently launched Reign brand, and should support high-single-digit growth longer term.

Our $79 per share valuation of narrow-moat Monster should rise by a low- to mid-single-digit percentage after its third-quarter earnings announcement, mostly on account of the time value of money as strong sales were offset by supply chain and aluminum can cost pressure. We view the challenges as transitory, and so our long-term forecasts (mid- to high-single-digit percentage top line growth against mid-30s adjusted operating margins) remain in place. We suggest investors await a more attractive entry point before building a position.