BMO Downgrades Monster Beverages After Hitting 'Peak Valuation'

Energy beverage maker Monster Beverage Corp MNST is likely to achieve its high-single digit to low-single-digit top-line and EPS growth rate in the near term, but the likelihood of outperformance is minimal, according to BMO.

The Analyst

BMO Capital Markets' Amit Sharma downgraded Monster Beverage from Outperform to Market Perform with an unchanged $62 price target.

The Thesis

The Street is modeling Monster Beverage to show 12-percent earnings growth over the coming three years, which Sharma said is "solid" compared to its large-cap staples peers. The growth rate is also "less compelling" compared to the company's 20-percent compounded annual growth rate seen over the past three, five and 10 years.

Monster Beverage is likely to show minimal or even no margin expansion in the U.S. and international markets due to inflationary pressures, a potential price hike domestically and an inconsistent track record outside of the U.S.

Meanwhile, Sharma said the dynamics of Monster Beverage and Red Bull's near-duopoly in the U.S. market will likely change. New competitors including VPX's Bang has seen its market share of U.S. energy drinks grow 100 basis points in the past month alone to 6 percent.

Monster Beverage's stock is trading at 29 times next 12 months P/E, which is likely "peak valuation" and marks a 1,000-basis point expansion after beverage giant The Coca-Cola Co KO took a 17-percent stake.