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Monster Beverage's New Share Buyback Plan to Boost Returns

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In a bid to enhance shareholders' value, Monster Beverage Corporation (MNST - Free Report) announced a new $500-million share buyback plan. Also, the new program does not have any expiry date and is expected to be made in the open market or via privately negotiated transactions. Following the news, the company’s shares moved up 5.4% on Wednesday’s trading session.

Share repurchase is an important tool, which enables a company to boost the value of shares. Since the repurchase reduces the number of shares outstanding, it thereby increases earnings per share and boosts the market value of the remaining shares.

Monster Beverage has been very active on the share repurchase front. In February 2017, the company’s board authorized a share repurchase program for the purchase of up to $500 million of the company’s outstanding common stock.

During the three months ended Mar 31, 2018, Monster Beverage purchased 4.3 million shares of common stock at an average purchase price of $57.74 per share, for a total amount of $249.9 million (excluding broker commissions), which exhausted the availability under the February 2017 Repurchase Plan.

Again in February 2018, the company’s board authorized a new share repurchase program for the purchase of up to $250.0 million of the company’s outstanding common stock. Notably, there is no availability remaining under this program.

Will Share Repurchase Revive the Stock?

This Zacks Rank #4 (Sell) company’s shares have declined 17.9% so far this year, which indicates investors’ low confidence in the company. Earnings estimates for 2018 and 2019 also fell 3.4% and 3.9%, respectively, over the past 30 days, reflecting analysts’ concern.

Of late, Monster Beverage has been grappling with multiple headwinds. Health-conscious consumers are opting for healthier alternatives. This shift in consumer preference is impacting sales of companies like Monster Beverage and other food as well as beverage giants like PepsiCo (PEP - Free Report) , Coca-Cola (KO - Free Report) and Dr Pepper Snapple Group, Inc .

Again, a decline in gross margin raises concern. Higher raw material costs (mainly aluminum and sweeteners) and unfavorable product mix hurt margin. First-quarter 2018 gross margin contracted 420 basis points (bps) to 60.6% due to higher promotional allowances, geographical and domestic product sales mix. Operating expenses increased 8.6% from the prior-year quarter to $235.3 million.

The new share repurchase is expected to boost Monster Beverage’s earnings and raise shareholders’ value.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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