Monster Beverage’s Valuation Benefits from 1Q16 Results



Impact of 1Q16

In part one of this series, we mentioned the ~13% appreciation in Monster Beverage’s stock on April 29 to $144.22 in response to the company’s strong earnings and sales in 1Q16 ended March 31, 2016. Also, on April 29, the company’s 12-month forward PE (price-to-earnings) ratio increased by ~12% to 35.4x.

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Valuation compared to peers

Monster Beverage’s valuation multiple is higher than its nonalcoholic beverage peers Coca-Cola (KO), PepsiCo (PEP), and Dr Pepper Snapple (DPS). As of April 29, Coca-Cola, PepsiCo, and Dr Pepper Snapple were trading at forward PE multiples of 22.8x, 21.4x, and 20.6x, respectively.

Monster Beverage’s premium valuation compared to its peers is justified by the strong demand for energy drinks and higher expectations from the company’s sales and earnings in 2016. Analysts expect Monster Beverage’s full-year 2016 sales and adjusted EPS to grow by 11% and 30%, respectively. Analysts expect the adjusted EPS of Coca-Cola, PepsiCo, and Dr Pepper Snapple to grow by -3%, 3%, and 8%, respectively, in 2016.

Growth strategy

Monster Beverage continues to expand the reach of its products internationally. In 1Q16, the company started the distribution of its Ultra brand in an additional eight markets in Europe, Middle East, and Africa (or EMEA). The company plans to launch Ultra in ten additional markets in EMEA in 2Q16.

The new products launched in 1Q16 include Monster Beverage’s new Gronk energy drink and Salted Caramel Java Monster. The company is planning to launch its new beverage Mutant in 3Q16.

The Consumer Staples Select Sector SPDR Fund (XLP) has 1.2% exposure to Monster Beverage.

Monster Beverage is also planning to launch its Monster Energy drink in China later this year. The company has received product approval and manufacturing license in Shanghai. In Beijing, the company has received the required product approval and is awaiting the manufacturing license. Monster Beverage has commenced the required approval process in Xiamen in Southeast China.

The company is also planning to relaunch Monster energy drinks in India in late 2016 and is moving ahead with its plans for local production in India.

For more updates, visit our Nonalcoholic Beverages page.


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