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Why Monster Beverage Is Trading at a Premium Valuation to Peers

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Valuation after 4Q16 results

As of March 3, 2017, Monster Beverage (MNST) was trading at a 12-month forward PE (price-to-earnings) ratio of 31.5x. Its valuation multiple rose 12.5% on March 2, 2017, in reaction to its impressive 4Q16 results announced after the markets closed on March 1.

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Premium valuation

Monster Beverage is currently trading at a premium valuation compared to its nonalcoholic beverage peers Coca-Cola (KO), PepsiCo (PEP), and Dr Pepper Snapple Group (DPS). As of March 3, 2017, Coca-Cola, PepsiCo, and Dr Pepper Snapple were trading at 12-month forward PE multiples of 22.6x, 21.3x, and 20.5x, respectively.

The company’s valuation multiple is also higher than the S&P 500 Index (SPX), which was trading at a 12-month forward PE multiple of 18.9x as of March 3, 2017.

Strong growth rates

Monster Beverage is expected to have a higher sales growth rate than its nonalcoholic beverage peers. That’s due to the strong demand for its energy drinks in the United States and in international markets. Analysts expect Monster Beverage’s sales to rise 10.7% to $3.4 billion in 2017. Its adjusted EPS (earnings per share) is expected to rise 14.5% to $1.49 in 2017.

Changes in sales growth for Coca-Cola, PepsiCo, and Dr Pepper Snapple are expected to be -17.6%, 0.50%, and 5.0%, respectively, in 2017.

Changes in adjusted EPS for Coca-Cola, PepsiCo, and Dr Pepper Snapple are expected to be -2.3%, 5.6%, and 4.2%, respectively, in 2017.

In the next part of this series, let’s look at analyst recommendations for Monster Beverage stock.

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