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3 Reasons to Add Monster Beverage (MNST) to Your Portfolio

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Monster Beverage Corporation (MNST - Free Report) has been maintaining momentum in the stock despite dealing with woes in the soft-drinks industry. Momentum in the company’s energy drinks business, with brand strength and product launches, has been the key growth driver. It is also witnessing robust growth in international markets and remains on track to launch products in 2019. Moreover, it is optimistic about its alignment with Coca-Cola’s (KO - Free Report) bottlers, which has expanded its distribution network.

On the flip side, other players in the soft-drinks industry continue to battle soft sales trends, owing to the unpopularity of the carbonated-drinks category (CSD). With growing consciousness related to health and wellness, consumers are particularly vigilant about the use of artificial sweeteners, high sugar content and obesity concerns. This is hurting growth of the CSD category, which has been witnessed by all major soft drink makers — including Coca-Cola, PepsiCo (PEP - Free Report) and Keurig Dr Pepper (KDP - Free Report) — leading to lower volumes and weak sales.

Notably, Monster Beverage has been tackling these headwinds due to its growing portfolio of energy drinks, which are being preferred by consumers at this moment. Additionally, the company managed to post strong top and bottom-line results despite adverse impacts from input cost inflation for aluminum cans, unfavorable product mix and increased freight costs on gross margins. Further, its sales continue to increase despite adverse currency translations.

Driven by these positives, this Zacks Rank #2 (Buy) stock increased 9% in the last three months, outperforming the industry’s growth of 4.3%.

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

 


Let’s get a detailed view of factors that may aid the stock’s growth moving ahead.

Energy Drinks’ Momentum

Monster Beverage offers a wide range of energy drink brands such as Monster Energy, Java Monster, Caffe Monster, Espresso Monster, among others, which is providing an edge over competitors. Further, the addition of Coca-Cola’s energy drink brands to Monster Beverage’s portfolio strengthened its position in the global energy drinks market. In the United States, management completely transitioned Monster Energy brand from distributors of Anheuser-Busch InBev SA/NV (BUD - Free Report) to Coca-Cola bottlers.

Management remains optimistic about the energy drinks category to continue gaining momentum in the months ahead, with the Monster brand growing significantly. Also, product launches across the Monster family will drive the company’s overall top and bottom lines. Evidently, net sales at the Monster Energy Drinks segment grew 15.9% in the fourth quarter of 2018.

International Business Bodes Well

Monster Beverage has a solid international presence and remains on track to enhance the global footprint to expand market share. The deal with Coca-Cola in 2015 (also referred to as the “TCCC Transaction”) provides Monster Beverage with full access to Coca-Cola’s world-class global distribution network. Under this deal, Coca-Cola and its bottling partners act as Monster Beverage's preferred distribution partners globally, thereby ensuring greater reach for its products.

Notably, Monster Beverage has been expanding international operations into various markets, including China, India, and countries in Africa and the Middle East. Evidently, net sales to customers outside the United States were up 30.4% in the fourth quarter of 2018.

Product Launches to Aid Sales

Product innovation plays a significant role in Monster Beverage’s success. There is a consistent demand for new products that are tasty as well as healthy. The company regularly introduces flavors of existing products while removing non-performing products. Notably, it launched Monster in Ecuador in the fourth quarter. Further, it is on track to roll out the brand in Bolivia in first-quarter 2019, and the Dominican Republic and Paraguay in the second quarter. Monster Beverage is also on track to launch Monster Energy Ultra Paradise and Java Monster Swiss Chocolate in the United States.

Management remains optimistic about the prospects of its brands and product launches. These are likely to drive top-line growth and increase overall profitability.

Conclusion

A detailed review of the company’s growth strategies suggests that the stock is definitely poised to regain traction in the future. This view is further supported by our VGM Score of B and a long-term earnings growth rate of 15.5%. Our research shows that stocks with a VGM Score of A or B combined with a Zacks Rank #1 or 2 offer the best investment opportunities.

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