Monster Beverage's Expansion Strategy Aids: Apt to Hold the Stock?
Shares of Monster Beverage Corporation MNST have gained 11.2% in the past month, outperforming the Zacks Beverages – Soft Drinks industry’s 2.8% growth, broader Consumer Staples sector’s return of 2.7% and the S&P 500 index’s 0.4% rise. This outperformance is attributed to the company’s expansion strategy and continued strength in its energy drinks category.
Currently priced at $52.35, MNST stock is trading at 14.5% to its 52-week high of $61.23. However, it is trading at a 20.8% premium to its 52-week low mark.
Analysts seem optimistic about MNST. The Zacks Consensus Estimate for 2024 sales and earnings per share (EPS) is currently pegged at $7.5 billion and $1.66, respectively. These estimates imply corresponding growth of 5.5% and 7.1% year over year. The consensus mark for 2025 sales and EPS is presently $8.2 billion and $1.89, respectively, indicating increases of 8.2% and 13.8%.
Expansion Strategy Bodes Well for MNST
Monster Beverage’s strength in its energy drinks category has been driving performance for a while now. It sees opportunities within the alcohol brand division. MNST’s energy drinks brands such as Monster Energy, Monster Energy Ultra, Monster Rehab, Monster Energy Nitro, Java Monster, Punch Monster, Juice Monster, Monster Hydro Energy Water, Monster Hydro Super Sport, Monster Super Fuel, Dragon, Reign Total Body Fuel, Reign Inferno Thermogenic Fuel, Reign Storm, True North, NOS, Full Throttle, Burn, Mother, Nalu, Ultra Energy, Play Relentless, BPM, BU, Gladiator, Samurai, Live+, Predator and Fury have been performing well.
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Product innovation plays a significant role in the company's success as it is committed to product launches and innovation to bolster growth. MNST launched Monster Aussie Lemonade in Japan, Monster Ultra Paradise in Malaysia, Monster Mango Loco and Pipeline Punch in Kazakhstan and Monster Mango Loco in the Philippines. It had earlier rolled out its first flavored malt beverage alcohol product, The Beast Unleashed, in the United States and received positive feedback. This marked the expansion of the distribution of The Beast Unleashed into the additional markets.
Management is optimistic about Nasty Beast Hard Tea and the additional alcohol opportunities. The company has also rolled out Predator and Fury, its affordable energy drink portfolio, in several markets internationally. Moving ahead, it has a solid innovation plan for 2024. In addition, management has been implementing pricing actions and reviewing opportunities for price increases internationally.
In the second quarter of 2024, the Monster Energy Drinks segment's net sales grew 3.3% year over year to $1.74 billion. On a currency-adjusted basis, the metric rose 6.5%.
High Costs & Other Woes Hinder MNST’s Growth
Monster Beverage has been witnessing higher costs for a while now. In the second quarter, operating expenses grew 9.3% year over year, due to higher sponsorship and endorsement expenses, elevated payroll expenses and increased storage and warehouse costs. As a percentage of sales, operating expenses expanded 160 basis points (bps) while selling expenses, as a percentage of net sales, increased 80 bps year over year. Distribution costs, as a percentage of net sales, rose 20 bps whereas general and administrative expenses, as a percentage of net sales, jumped 60 bps year over year.
In addition, MNST witnessed lower growth rates in the energy drink category across the United States and a few other countries in the second quarter, due to soft store foot traffic and a shift at retail toward more mass and dollar channels. Adverse foreign currency exchange rates continued to be deterrents. These limitations are likely to weigh on the company’s overall profitability.
Conclusion
The aforesaid challenges faced by MNST cannot be ignored. Nevertheless, the company has been trying to bolster growth. For existing investors, retaining the stock seems to be a prudent choice, considering the company’s potential and strategic initiatives. It currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
The Chef's Warehouse CHEF, which is a distributor of specialty food products in the United States, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
CHEF has a trailing four-quarter earnings surprise of 33.7%, on average.
The Zacks Consensus Estimate for CHEF’s current financial-year sales and EPS indicates growth of 9.7% and 12.6%, respectively, from the year-ago numbers.
Flowers Foods FLO offers baked items and has a Zacks Rank #2 (Buy). FLO has a trailing four-quarter average earnings surprise of 1.9%.
The Zacks Consensus Estimate for Flowers Foods’ current financial-year sales and earnings implies growth of 1% and 4.2%, respectively, from the year-ago numbers.
Utz Brands Inc. UTZ, which manufactures a diverse portfolio of salty snacks, currently carries a Zacks Rank of 2. UTZ has a trailing four-quarter earnings surprise of 5%, on average.
The Zacks Consensus Estimate for Utz Brands’ current financial-year EPS indicates growth of 28.1% from the year-ago number.
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