On Jan 21, we initiated coverage on
Monster Beverage Corporation
) with a Neutral recommendation. Although the beverage company
enjoys a strong portfolio of iconic brands and a significant
international presence, we remain on the sidelines due to its
weak top-line performance.
Why a Neutral Recommendation?
We are encouraged by Monster Beverage's commanding presence in
the fast growing energy drinks markets.
Monster Beverage offers a wide range of products under energy
drinks, juice based and soda beverages categories. The company
offers beverages under brands such as Monster Energy, Java
Monster, X- Presso Monster, Worx Energy, Peace Tea, Hansen,
Junior Juice, Blue Sky, Hubert's, Vidration and Monster Rehab.
With the energy drink market gaining momentum, Monster Beverage
has huge potential in the near future.
Monster Beverage generates a significant portion of its revenues
from outside the U.S. The company operates in over 100 countries
across the world. In fact, expansion of the Monster Energy brand
in the international market contributed significantly to net
sales in third quarter 2013.
In order to cater to the ever changing taste and preference of
consumers, Monster Beverage continuously introduces new products.
During 2013, the company launched Monster Energy Ultra Blue in
March and Monster Energy Ultra Red in September, which have been
extremely successful. In 2014, the company intends to introduce
juice cocktail under the Peace Tea brand. The company will also
launch the Punch Monster product line in 2014.
However, Monster Beverage like other beverage giants is seeing
sluggish sales due to softness in the North American beverage
industry. The company's new Monster Energy branded Zero Ultra and
Ultra Blue energy drinks cannibalized sales of the existing
brands, hurting overall top line.
In addition, the company has been facing legal issues related to
the impact of energy drinks on the health of its consumers.
Monster Beverage energy drinks contain 160 milligrams of caffeine
in a 16-ounce can. The company finds itself in the midst of
several controversies about whether its energy drinks are safe
for consumption especially by children and adolescents. The Food
and Drug Administration is currently investigating the impact of
caffeine in food and dietary supplements, which includes Monster
Beverage products. The report is pending. Any undesirable changes
in regulations will impact the company's operations. The company
is also incurring high professional services costs related to
legal issues which hurts margins. However, in Dec 2013, the
company claimed that its leading energy drinks contain half the
amount of caffeine compared to coffee and hence are safe for
Monster Beverage carries a Zacks Rank #2 (Buy). Other consumer
goods stocks worth considering include
The WhiteWave Foods Company
Coca-Cola HBC AG
The Hain Celestial Group, Inc.
). The WhiteWave Foods Company carries a Zacks Rank #1 (Strong
Buy) while Coca-Cola HBC and Hain Celestial carry a Zacks Rank #2
COCA COLA HELNC (CCH): Free Stock Analysis
HAIN CELESTIAL (HAIN): Free Stock Analysis
MONSTER BEVERAG (MNST): Free Stock Analysis
WHITEWAVE FOODS (WWAV): Free Stock Analysis
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