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Monster Beverage: Strong Buy on Solid Q4, Estimate Revision - Analyst Blog

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On Mar 3, Zacks Investment Research upgraded Monster Beverage CorporationMNST to a Zacks Rank #1 (Strong Buy).

The beverage company's estimates have been trending up since the company reported impressive fourth-quarter fiscal 2014 results on Feb 26.

Why the Upgrade?

Monster Beverage's fourth-quarter 2014 financial numbers impressed with a marked increase in earnings and revenues which came on the back of strong sales in international markets.

Adjusted earnings of 72 cents per share beat the Zacks Consensus Estimate of 59 cents by 22% and rose a massive 63.2% year over year on the back of solid revenues, strong margins, better cost leverage and a lower tax rate.

Monster Beverage's fourth-quarter 2014 net sales of $605.6 million surpassed the Zacks Consensus Estimate of $585 million by 3.5% and improved 12% year over year.

Revenues were driven by strong sales in markets outside the U.S., particularly in Europe and Japan. Notably, gross sales outside the U.S. increased 16.1% year over year during the fourth quarter.

The revenue upside was also driven by solid sales of the Original Monster Green energy, Java Monster and Zero Ultra drinks. In fact, even the latest launch - Ultra Sunrise - performed well in the quarter. Some of the other brands that did reasonably well in the quarter include Juice Monster and Punch Monster.

Moreover, fourth-quarter 2014 gross margin rose 360 basis points (bps), attributable to favorable changes in product sales mix, increase in production efficiencies and decrease in cost of some raw materials, particularly certain sweeteners. The gross margin increase was also supported by higher prices of the 24-ounce Monster Energy brand energy drinks and the Peace Tea line offerings.

Operating income improved a handsome 43.1% owing to higher income from international regions such as Europe and Japan.

The Coca-Cola Deal

We believe Monster Beverage has also been witnessing rising estimates as investors have pinned their high hopes on The Coca-Cola Company KO deal which was initiated in Aug 2014.

Under the long-term strategic deal, Coca-Cola will transfer ownership of its worldwide energy business to Monster Beverage. Also, Coca-Cola will gain ownership of Monster Beverage's non-energy business. The transaction is expected to close in second-quarter 2015.

If the deal gets the necessary go-aheads, Monster Beverage will gain access to Coca-Cola's worldwide distribution network that can help it scale new highs. Keeping in mind the substantial increase in demand for energy drinks, this deal will likely prove to be a strategic fit for Monster Beverage.

Key Picks from the Sector

Other favorably-ranked stocks in the beverage industry include Coca-Cola Amatil Ltd. CCLAY and Youngevity International, Inc. YGYI . Both the companies carry a Zacks Rank #2 (Buy).

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MONSTER BEVERAG (MNST): Free Stock Analysis Report

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YOUNGEVITY INTL (YGYI): Get Free Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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