Assessing Monster Beverage’s Valuation before 2Q16 Results



12-month forward PE

Monster Beverage (MNST) was trading at a 12-month forward PE (price-to-earnings) ratio of 36.6x as of July 25. The company’s valuation multiple has fallen 3.4% year-to-date. However, the company’s 12-month forward PE has risen 3.5% since the announcement of its 1Q16 results in April 2016.

The 12-month forward PE ratio is impacted by many factors, including expected growth, risks and uncertainties, and investors’ willingness to pay for the next four quarters of earnings.

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Valuation multiples for peers

Currently, Monster Beverage’s valuation multiple is higher than its nonalcoholic beverage peers’. As of July 25, Coca-Cola (KO), PepsiCo (PEP), and Dr Pepper Snapple (DPS) were trading at 12-month forward PEs of 23.1x, 22.0x, and 21.7x, respectively. Monster Beverage, Coca-Cola, PepsiCo, and Dr Pepper Snapple together constitute 2.3% of the iShares S&P 500 Growth ETF (IVW).

Monster Beverage is also trading at a premium valuation compared to the S&P 500 Consumer Staples Index (forward PE of 21.2x) and the S&P 500 Index (forward PE of 17.4x).

Monster Beverage’s higher valuation compared to its peers is backed by its strong expected sales and earnings growth rates. For 2016, analysts expect Monster Beverage’s sales to grow by 11.8% to $3 billion. Strong demand for Monster Beverage’s energy drinks in domestic and international markets is expected to drive top-line growth. The company’s adjusted EPS (earnings per share) is expected to increase by 31.4% to $3.93 in 2016. Adjusted EPS excludes the impact of non-recurring items.

Analysts’ expectations for peers                         

For fiscal 2016, analysts expect PepsiCo’s revenue to decline by 0.6% and adjusted EPS to rise by 4.2%. On July 7, PepsiCo raised its full-year adjusted EPS guidance to $4.71 from the company’s previous guidance of $4.66. PepsiCo’s adjusted EPS was $4.57 in fiscal 2015. For more information on PepsiCo’s 2Q16 results, read PepsiCo Posts Refreshing Fiscal 2Q16 Results: How Did It Do It?.

Analysts expect Coca-Cola’s revenue and adjusted EPS to fall 3.6% and 3%, respectively, in fiscal 2016. Dr Pepper Snapple (DPS) is expected to deliver sales and adjusted EPS growth of 1.9% and 8%, respectively, in 2016.

For more updates, visit our Nonalcoholic Beverages page.


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