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Monster Beverage Corp MNST

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Morningstar’s Analysis

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Buoyant Industry Demand Supports Strong Q1 Results at Monster; Shares Rich as Cost Headwinds Linger

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 first-quarter earnings print, the firm delivered mixed results, as revenue was ahead but earnings behind relative to FactSet consensus. 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 (which drove the bottom-line miss). We plan to decrease our 2021 gross margin estimate to 58% (currently 59% versus 59.2% in 2020), but this should be more than superseded by time value as well as top-line outperformance, culminating in a mid-single-digit increase to our $73 fair value estimate. Shares were down 5% after hours, but still look rich to us. 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.

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