Bear of the Day: Monster Beverage (MNST)


May 14, 2013 |

Disappointing results and rising regulatory concerns have led to sharp downward estimates revisions, sending this energy drink company to a Zacks Rank # 5 (Strong Sell).

About the Company

Headquartered in Corona, California, Monster Beverage is a marketer and distributor of energy drinks and alternative beverages. 

Heath Risk Concerns related to Energy Drinks

While the energy drinks industry has expanded exponentially in recent years, there have been rising concerns related to their health risks. New York’s attorney general had subpoenaed energy drink makers, including Monster, and the FDA is also looking into the safety of these drinks.

San Francisco’s city attorney is now suing Monster Beverage for marketing its energy drinks to children, saying the products pose severe health risks.

Disappointing Results

The company reported its first quarter results on May 8, 2013. Net income for the Q1, 2013 was down 16.6% to $63.5 million from $76.1 million in the previous year quarter. Net income per diluted share also decreased 10.4% to $0.37 from $0.41 per share in the Q1, 2012.  The earnings were substantially short of the Zacks consensus estimate of $0.47 per share.

The company has disappointed its investors in each of the last four quarters, with an average negative surprise of 11%.

According to the company, results were hurt by $8.3 million of distributor termination obligations, $4.7 million of foreign currency transaction losses and $3.0 million of legal costs.

Downwards Revisions

Due to disappointing results, quarterly and annual estimates have been revised downwards in the past week by five analysts.

Zacks consensus estimate for the current quarter now stands at $0.64 per share versus $0.68 per share, 7 days ago, while the full-year consensus estimate is $2.15 per share now, down from $2.26 per share.

The Bottom Line

While the global energy drinks market continues to grow, rising health risk concerns and resulting lawsuits will continue to affect the stock.

MNST is currently Zacks Rank # 5 (Strong Sell) stock and it also has a longer-term recommendation of “Underperform”.  

Given above reasons, we would advise the investors to stay away from this stock for the time being.

Better Play

Investors looking for exposure to the Beverage-soft drinks industry can consider Pepsico (PEP)—a Zacks rank #2 (Buy) stock. The company’s recent results beat both the Zacks Consensus Estimate as well as the year-ago results.

The company also delivered positive top line growth and strong margins. Further, it raised its dividend by 5.6%-- its 41st consecutive annual dividend increase.

Want the latest recommendations from Zacks Investment Research? Today, you can download7 Best Stocks for the Next 30 Days.Click to get this free report >>

Email Print Share Rate Pos Rate Neg