Out Of Energy: JPMorgan Downgrades Monster Beverage To Neutral

Monster Beverage Corp MNST reported first-quarter results Tuesday that were "underwhelming" and signal that the company will face headwinds in the near term, according to JPMorgan.

The Analyst

JPMorgan's Andrea Teixeira downgraded Monster Beverage's stock from Overweight to Neutral with a price target lowered from $67 to $52.

The Thesis

Monster Beverage reported sales growth of 14.7 percent in the first quarter, which was in-line with the Street's estimates — but short of the 16.7 percent Teixeira was modeling, the analyst said in a Wednesday note.

International sales growth of 17.5 percent also fell short of the 28 percent JPMorgan expected based on projections of a sales uptick from inventory timing that impacted fourth-quarter international growth. The energy drink maker earned 39 cents per share in the quarter, which matched the consensus estimate but fell short of the analyst's estimate by one penny.

While double-digit revenue growth is commendable, the company is entering a difficult six-to-nine-month period, Teixeira said. Higher gas prices could "dampen" convenience store trends, where energy drinks are over-indexed, the analyst said.Ongoing margin pressures — higher aluminum costs, for example — will persist over the coming months, according to JPMorgan.

Monster Beverage's earnings report was "disappointing across the board," and if it wasn't for a favorable impact from tax changes, its EPS would have missed by a wider margin, Teixeira said.

Coupled with a "challenging road ahead," the bullish case no longer applies until management shows signs it can improve on the margin front, according to JPMorgan.

Price Action

Monster Beverage were trading lower by 7.4 percent late Wednesday morning at $49.15.

Related Links:

How Aluminum Prices Impact Monster Beverage's Gross Margins

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