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Monster Beverage (MNST) Rises 25.4% in a Year: More Room to Run?

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Monster Beverage Corporation (MNST - Free Report) has been in investors’ good books, owing to optimism over its energy drinks business, which has been in good shape despite the industry challenges. Continued strength in its energy drinks category, particularly the Monster Energy brand, supported top-line growth in first-quarter 2021. The company’s robust performance is also linked to its commitment to product innovation from time to time.

Looking into the year ahead, management doesn’t expect any material impact of the COVID-19 pandemic on the functioning of its co-packers and bottlers/distributors, who manufacture and distribute products, respectively. Monster Beverage’s supply chain also remains unaffected, with no major impact on raw material and finished product shortages. The company is sourcing its aluminum can requirements from South America and Asia to meet the growing demand.

The Zacks Rank #3 (Hold) stock has rallied 25.4% in the past year compared with the industry’s growth of 19%.


Zacks Investment ResearchImage Source: Zacks Investment Research


Now let us discuss at length why you should hold on to the marketer and distributor of energy drinks and alternative beverages.

We suggest holding on to the Monster Beverage stock as we expect the momentum in its energy drinks business to continue. The company is well-poised in the energy drinks space, with a broad range of products, including Monster Energy, Java Monster, Cafe Monster, Espresso Monster, Monster Energy Mule, Juice Monster Pipeline Punch, Juice Monster Pacific Punch, Juice Monster Mango Loco, Monster Ultra Paradise, and Monster Hydra Sport.

In first-quarter 2021, the Monster Energy Drinks segment’s net sales advanced 17.9% year over year to $1.17 billion. The segment’s sales included a positive impact of $9.3 million from favorable currency rates. Sales of the energy brands, including Reign, rose 27% in the four-week period ended Mar 31, 2021, in the convenience and gas channel.

Management is optimistic about strength in the energy drinks category, with the Monster Energy brand growing significantly. Product launches across the Monster family will also drive the company’s overall top and bottom lines.

Monster Beverage remains committed to product launches and innovation to boost growth. In the first quarter of 2021, the company launched Reign Cherry Limeade, Reign White Gummy Bear, Reign Inferno Watermelon warlord, Monster Ultra Gold in singles and a 4-pack, Monster Green, Low-Carb Monster, Monster Zero Ultra, Monster Ultra Paradise, Rehab Monster Strawberry Lemonade belonging to Rehab Monster brand, Monster Ultra Fiesta, Java Monster Oat Milk, and Monster Ultra Paradise in Canada.

The company rolled out Monster Ultra Paradise, Reign Lilikoi Lychee singles and Reign Orange Dreamsicle, NOS Turbo, Pacific Punch in Mexico; Mean Green in Honduras; and Ultra Watermelon in Puerto Rico. Meanwhile, the Ultra Paradise in Aruba; Ultra Rosa made debuted in Australia. It also launched the Monster Super Fuel in both Purple Passion and sugar-free flavors in New Zealand; Monster Energy Super Cola in Japan; and Pipeline Punch in Hong Kong and Macau.

Management remains on track with various launches this year. Notably, it plans to introduce a line of energy drinks under the brand name — True North — in summer 2021.

Hurdles on the Way

Although the company’s product pipeline suggests the sales momentum to continue, its operating expense deleverage has been weighing on the bottom-line performance. In first-quarter 2021, operating expenses grew 10.5% year over year, which led to declines in gross and operating margins. Monster Beverage’s gross margin contracted 250 basis points (bps) to 57.5% year over year due to higher input costs, geographical sales mix and increased promotions. The operating margin contracted 110 bps to 33.3% for the said quarter. Additionally, freight inefficiencies along with higher aluminum can costs remain concerning.

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