Will Monster Beverage’s Q1 Sales Impress amid COVID-19?

Monster Beverage (NASDAQ:MNST) will likely announce its first-quarter results after the financial markets close on Thursday. So far, the stock has fallen 4.6% in 2020. Aside from COVID-19, the stock has also been under pressure due to news about increased competition in the energy drinks space. Notably, PepsiCo (NASDAQ:PEP) acquired Rockstar Energy.

The competition in the energy drinks market intensified. Brands like Vital Pharmaceuticals’ Bang have been gaining popularity. Coca-Cola (NYSE:KO) launched Coca-Cola Energy in the US and certain international markets to capture growth in the energy drinks market. Coca-Cola has a stake in Monster Beverage. In 2015, the company transferred its energy drinks brands to Monster Beverage in return for the latter’s non-energy portfolio. Coca-Cola is the preferred global distributing partner of Monster Beverage. The company launched Coca-Cola Energy in additional markets after a favorable arbitration ruling last year.

Monster Beverage’s growth expectations

Analysts expect Monster Beverage’s first-quarter net sales to rise 5.6% YoY (year-to-year) to $999.1 million. The estimated growth rate reflects a slowdown compared to 10.1% and 11.2% sales growth in the fourth quarter and the first quarter of last year. Analysts expect supply chain disruptions amid COVID-19 to have a negative impact on the company’s sales. They also expect lower sales from the away-from-home channel to hurt the first-quarter top line. Restaurants closed temporarily due to lockdowns and social distancing restrictions.

Meanwhile, analysts expect Monster Beverage’s first-quarter adjusted EPS to decline 4.0% YoY to $0.48. The company’s margins have been under pressure due to an unfavorable product and geographical mix. Also, currency headwinds might weigh on the company’s first-quarter results.

Will the stock recover in 2020?

Monster Beverage wants to boost its sales through innovation. In the fourth-quarter conference call, the company announced many new products that it launched or plans to launch. Last October, the company introduced Java Monster Farmer Oats—the company’s first plant-based coffee product that contains oat milk. The company also introduced Reign Inferno thermogenic fuel in three flavors in January.

Monster Beverage will launch new products in international markets and expand the reach of existing products. For instance, the company launched Monster HydroSport in Germany, Great Britain, Northern Ireland, the Republic of Ireland, and France in recent months. Monster Beverage also disclosed its plans to launch the HydroSport drink in Norway and Sweden. The company intends to expand its affordable energy drink brand Predator in more countries this year.

Analysts also think that the expanded distribution of Monster Beverage’s products through Coca-Cola’s strong network will boost its international sales.

Currently, 11 out of 17 analysts have a “buy” recommendation for Monster Beverage stock. Five analysts recommend a “hold,” while one recommends a “sell.” In April, Bank of America Merill Lynch reinstated its coverage of Monster Beverage stock with a “buy” recommendation and a target price of $70. The firm believes in the company’s long-term growth beyond the COVID-19 related disruption in the short term.

Analysts have an average target price of $67.71 for Monster Beverage stock. The estimate implies an upside of about 12%. The company’s update about its business amid COVID-19 will influence its stock price movement.

Meanwhile, PepsiCo reported strong first-quarter results but withdrew its fiscal outlook amid the pandemic. Also, Coca-Cola reported better-than-expected first-quarter results. However, the company warned about a loss of sales from the away-from-home channels in the second quarter.