Monster Beverage Is A 'Compelling Growth Story,' Deutsche Bank Says In Upgrade

Monster Beverage Corporation MNST's weak fourth quarter sent the stock tumbling lower to a level that makes it attractive to buy, according to Deutsche Bank. 

The Analyst

Deutsche Bank's Steve Powers upgraded Monster Beverage from Hold to Buy with an unchanged $63 price target.

The Thesis

Monster Beverage's stock has underperformed the overall market by 14 points since reporting its Q4 results, and this "overly negative reaction" represents a buying opportunity, Powers said in a Sunday note. The sell-off has lowered the stock's forward P/E multiple to 29.7x, which is not necessarily cheap, but in-line with Monster's five-year historical average, Powers said. 

Monster stock is a "premium-priced asset" but also a "compelling growth story," the analyst said. Companies like Monster Beverage that boast a compelling growth story are rare in a sector where any form of growth is "scarce," Powers said.

Deutsche Bank projects that Monster is well-positioned to grow its top-line by 9 to 12 percent, and said Monster's brands are expected to reach 75-percent market share parity with Red Bull outside the U.S. by 2028. 

"We estimate core Monster contributing the most growth in the U.S. through [fiscal 2021], aided by coffee and modest benefits from new concepts like Hydro and Mutant," Powers said. 

The Coca-Cola Co KO owns an 18.1-percent stake in Monster Beverage. Assuming an outright acquisition in the past was an "extreme" stretch, especially considering the majority of its cash was "trapped" oversees, Powers said. But recent tax reform changes this narrative, and Coca-Cola is "better positioned than ever" to increase its ownership in the company or even acquire a majority and controlling stake, he said. 

While the Q4 print was "disappointing," pullbacks in Monster Beverage's stock have historically proven to be a "rewarding" entry point, Powers said. 

Price Action

Shares of Monster Beverage were trading up 3.49 percent at $56.05 Monday morning. 

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