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Monster Beverage Corp MNST

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Morningstar’s Analysis

Valuation
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1-Star Price

PREMIUM

5-Star Price

PREMIUM

Economic Moat

PREMIUM

Capital Allocation

PREMIUM

Monster Delivers Strong Q2 Despite Onerous Supply Chain Constraints; Market Still Overexuberant

Analyst Note

| Nicholas Johnson, CFA |

The bandwagon of bulls in narrow-moat Monster’s camp has only gotten fuller in recent months, as many investors have become increasingly enamored with its innovation slate and the attendant growth prospects. With this as the backdrop for its second-quarter earnings print, the firm showcased commendable execution, culminating in modest beats on the top and bottom lines relative to FactSet consensus. Still, while the firm’s business has been inoculated from the broader economic disruption wrought by the pandemic, the same cannot be said of the rampant logistics and raw material inflation plaguing its industry. Profitability (particularly gross margin) remains challenged, and at least for now, the light at the end of the tunnel seems more like a flicker. We plan to raise our $76 fair value estimate by a low- to mid-single digit percentage, reflecting time value along with vibrant consumer demand, slightly offset by near-term margin pressure, but the shares still aren’t a bargain. Despite a growth profile that is unparalleled across soft drinks, and which has accelerated during COVID-19, the long-term assumptions embedded in its valuation continue to stretch credulity, in our view.

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Company Profile

Business Description

Monster Beverage is a leader in the energy drink subsegment of the beverage industry. The Monster trademark anchors its portfolio, and notable offerings include Monster Energy and Monster Ultra. The firm has also started to incubate new trademarks for emerging enclaves of the energy space, like Reign in performance energy. It is primarily a brand owner, outsourcing most of its manufacturing processes to third-party copackers. It primarily uses the Coca-Cola bottling system for distribution after a strategic agreement in which Coke became Monster’s largest shareholder (roughly 19%) and that also included the exchange of certain businesses between the two firms. Most of Monster’s revenue is generated in the United States, though international geographies are increasing in the mix.

Contact
1 Monster Way
Corona, CA, 92879
T +1 951 739-6200
Sector Consumer Defensive
Industry Beverages - Non-Alcoholic
Most Recent Earnings Jun 30, 2021
Fiscal Year End Dec 31, 2021
Stock Type Aggressive Growth
Employees 3,666

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