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Monster Beverage Corp MNST

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Morningstar’s Analysis

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Sublime Execution Continuing to Drive Upside at Monster, but Valuation Remains Tenuous in Our View

Analyst Note

| Nicholas Johnson, CFA |

Robust growth in syndicated energy drink data, speculation around a potential foray into alcoholic seltzer, and a plethora of sell-side bulls all catapulted narrow-moat Monster’s stock to new highs in the months leading up to its fourth-quarter earnings print. Ultimately, the firm’s execution remains undaunted by pandemic disruption, as it delivered a record quarter ahead of FactSet consensus on both the top and bottom lines (though the latter was largely due to a nonrecurring tax benefit). We plan to raise our $67 fair value estimate by a high-single-digit percentage to reflect time value after rolling our model, as well as elevated near-term sales momentum. In our view, however, current valuation levels still border on untenable, given the rosy assumptions necessary to justify them.

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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, Monster Ultra, and Java Monster. Operationally, the firm 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 as its products’ distribution scales across the Coca-Cola network.

1 Monster Way
Corona, CA, 92879
T +1 951 739-6200
Sector Consumer Defensive
Industry Beverages - Non-Alcoholic
Most Recent Earnings Sep 30, 2020
Fiscal Year End Dec 31, 2020
Stock Type Aggressive Growth
Employees 2,422