Monster Beverage's International Growth May Not Be Enough To Offset US Slowdown

Monster Beverage Corp’s MNST risk-reward seems unfavorable due to the slowdown in US trends, emerging global competition and the company’s increasing dependence on lower margin international growth, according to UBS.

The Analyst

UBS analyst Sean King maintained a Sell rating on Monster Beverage, while raising the price target from $52 to $53.

The Thesis

Monster Beverage reported third-quarter earnings of 55 cents per share, beating the consensus expectation of 52 cents. The earnings beat was driven by solid growth in international sales, which came in at 34.2%, versus Street expectations of 22.5%, King said in the note.

He added, however, that the company’s sales growth in the US was disappointing and the trends suggest negative underlying volume growth.

Although Monster Beverage’s international growth so far this quarter has remained strong, it is low margin. The analyst added that the company faces several difficulties in the US, including pricing laps beginning in the fourth quarter of 2019 and Reign pipeline fill starting in the first quarter of 2020.

If US sales growth turns flat to negative, Monster Beverage would need to generate around 30% to 35% international growth to meet the consensus expectations of 9%-10% total sales growth, King said. He further wrote, “In that scenario, international margins also would require a marked improvement to meet consensus earnings expectations.”

Price Action

Shares of Monster Beverage were up 3.64% to $58.70 at the time of publishing on Friday.

Photo courtesy of Kojima Productions on Twitter. Monster Energy is featured in their new game "Death Stranding."