Are Investor Concerns On Monster Beverages Misplaced?

BMO reiterated its Outperform rating on the shares of Monster Beverage Corporation MNST saying investors' concerns of sales growth deceleration in the United States appear misplaced.

The bullish comments from BMO come after a note from Wells Fargo’s Bonnie Herzog discussing whether Monster Beverage could return to double-digit, top-line growth in the United States soon, if ever.

Sales Growth Expectations

The company recently indicated that fourth-quarter sales growth is expected to be in line with previously reported October sales trends of 12.3 percent, largely in line with BMO and consensus expectations.

“We gained renewed confidence in MNST's attractive sales and earnings growth outlook, given management's upbeat assessment of brand Monster's roll-out in China, brand Mutant's encouraging launch in the U.S., a stronger innovation pipeline in 2017,” BMO analyst Amit Sharma wrote in a note.

Headwinds

However, the analyst acknowledged that Java Monster production constraints, which are expected to normalize in the next two quarters, would hurt fourth-quarter sales by $20 million.

Tailwinds

Despite a relatively slow buildup, Sharma noted that brand Mutant is tracking ahead of his expectations ($50 million–$60 million sales in 2017).

On the China front, Sharma projects the region’s sales could exceed $125 million by 2018 — contributing nearly 350 bps to its sales growth.

The analyst is also upbeat on the prospects of Monster’s upcoming new products such as Hydro, Café Monster, mango-flavored Juice Monster and a complete refresh of brands acquired from The Coca-Cola Co KO.

In addition, Sharma is positive on Monster’s recent multiyear sponsorship agreement with Nascar and Tiger Woods, despite its negative impact on near-term margins. The analyst expects that such deals would attract new consumers.

At last check, shares of Monster Beverage had gained 4.06 percent to $44.86. Sharma has a price target of $55 on the stock.