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Here's Why Investing in Monster Beverage (MNST) Makes Sense

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The Monster Beverage Corporation (MNST - Free Report) stock witnessed a comeback on the back of solid momentum in the energy drinks business amid a challenging industry backdrop. Additionally, optimism on the company’s alliance with Coca-Cola’s (KO - Free Report) bottlers globally, which broadened its distribution network, is favoring the stock. Notably, the company has gained a robust 15.7% in the past month, outperforming the industry’s growth of 5.1%.

 


 

The stock, which currently carries a Zacks Rank #2 (Buy), has a VGM Score of B, indicating further growth potential. Moreover, the company’s expected long-term earnings growth rate of 16% suggests a positive earnings momentum in the upcoming quarters.

Key Factors at Play

Despite the overall softness in the beverage industry, Monster Beverage displayed strong momentum in the energy drinks category, with a wide range of brands — including Monster Energy, Java Monster and Worx Energy among others. The addition of Coca-Cola’s energy drink brands to the company’s portfolio strengthened its position in the global energy drinks market. In the third quarter of 2018, the company fully transitioned Monster Energy brand from the Anheuser-Busch InBev SA/NV (BUD - Free Report) distributors to Coca-Cola bottlers in the United States.

Furthermore, the company extended the distribution of Monster Energy to 40 major cities in India. The company expects the momentum in the energy drinks category to continue in the months ahead, courtesy of gains from Monster Energy, Monster Hydro and Mutant drinks brands. Moreover, additions to the Monster brand are expected to generate incremental sales and boost profitability.

Simultaneously, Monster Beverage’s solid international presence and plans for further expansion are working in its favor. Notably, the company expanded international operations into various markets — including China, India, and countries in Africa and the Middle East. Net sales to customers outside the United States were up 8.8% in the third quarter of 2018.

All these factors, clubbed with the company’s product innovation strategy, proved advantageous as in the beverage industry there is a consistent demand for new products that are tasty and healthy. Monster Beverage regularly introduces new flavors of existing products while removing non-performing products. Management remains optimistic about the prospects of its brands and product launches. These are likely to drive top-line growth and increase overall profitability.

Moreover, analysts became increasingly bullish on the Monster Beverage stock in the recent months, owing to the robust surprise trend. The company reported positive earnings surprise in the preceding two quarters, with sales reverting to a positive trend in third-quarter 2018, after three consecutive misses. The top line benefited from solid sales at the Monster Energy Drinks segment and advance purchases made by customers due to a pre-announced price hike.

Another Key Pick

You may consider another top-ranked stock in the Consumer Staples sector, Archer Daniels Midland Company (ADM - Free Report) . It delivered positive earnings surprise of 26.9% in the trailing four quarters. The company currently has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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