Back to top

Is Coca-Cola Mulling Over the Buyout of Monster Beverage?

Read MoreHide Full Article

The Coca-Cola Company (KO - Free Report) has a possibility to take over the renowned energy drink maker Monster Beverage Corp. (MNST - Free Report) , according to founder of The Street, Jim Cramer. Meanwhile, Monster Beverage’s shares scaled a new 52-week high of $56.44 on Aug 31, finally ending the day’s trading a tad lower at $55.82.

Coca-Cola had already acquired a 16.7% stake in Monster Beverage on Jun 12, 2015. Hence, according to Cramer, Monster Beverage is a possible buyout choice for Coca-Cola as the company has also been focusing on portfolio expansion in order to gain a competitive edge in the U.S. beverage space.

Furthermore, Coca-Cola’s new CEO, James Quincey is known for his motivation in expanding the company’s brand through acquisitions.

In the U.S. beverage space, Coca-Cola along with other major soft drink makers like Pepsico, Inc. (PEP - Free Report) and Dr Pepper Snapple Group, Inc. (DPS - Free Report) have been facing carbonated soft drinks (CSD) category headwinds for some time now.

Cross-category competition and growing health and wellness consciousness have resulted in a drastic shift in consumer demand toward healthier beverages like energy drinks, tea juices and flavored waters. Consumer’s watchfulness over the use of artificial sweeteners and high sugar content has dented sales for companies belonging to the beverage industry.

In fact, Coca-Cola’s second-quarter 2017 revenues declined 16% year over year to $9.7 billion, marking the ninth consecutive quarterly decline in revenues.

Year to date, shares of Coca-Cola have underperformed the industry. The company’s shares have rallied 9.8% as compared with the industry’s 14.1% gain.

Notably, new taxes levied on sugar-sweetened beverages and growing regulatory pressure are affecting CSD sales for Coca-Cola. In order to navigate such challenges, it is necessary for the company to diversify its portfolio by tacking on other healthier energy drink makers like Monster Beverage.

Monster Beverage drinks are healthier options and keeps up with changing consumer preferences. New innovative mutant soft drink, known as “super soda,” has considerably drove revenues and profits in the last quarter from the year-ago quarter for Monster Beverage.

However, Coca-Cola’s strategic efforts in enhancing its portfolio as a total beverage company are encouraging. Takeover of Monster Beverage can therefore prove beneficial in terms of revenue growth for this Zacks Rank #3 (Hold) company. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

More Stock News: This Is Bigger than the iPhone!

It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.

Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.

Click here for the 6 trades >>

More from Zacks Analyst Blog

You May Like