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to decrease our 2021 gross margin estimate to 58% (currently 59% versus 59.2% in 2020), but this should be more than superseded by time value as well as top-line outperformance, culminating in a mid-single-digit increase to our $73 fair value estimate.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.