UBS: Monster Beverages Continues To Face 'Fundamental Controversy'

Monster Beverage Corp MNST continues to face a "fundamental controversy" related to its growth profile, especially for the Reign brand which fell short of expectations in the second quarter, according to UBS.

The Analyst

UBS analyst Sean King maintains a Sell rating on Monster Beverage's stock with a $52 price target.

The Thesis

Monster Beverage's second-quarter report on Aug. 7 showed its buy-one-get-one free (BOGO) promotion for Reign products didn't live up to expectations, King wrote in a note. Management's early commentary for June and July imply a continuation of poor performance. The company also said it will no longer offer a full-year outlook for the Reign brand and may imply poor retail acceptance in the highly competitive energy drink market.

The company's second-quarter report added to the research firm's existing "tempered expectations" and it's unclear if a notable acceleration in sales can be achieved.

The recent inclusion of the brand in Walmart Inc WMT could contribute incremental growth of around 160 basis points on average each month by the end of 2020.

However, growth from sales at Walmart may not be enough due to third party data showing a slowdown in weekly trends and already-strong convenience store channel distribution nearing 90% All-commodity volume (ACV). Other factors to warrant a bearish stance on the stock includes: a difficult third-quarter comparison versus last year's large advanced shipment, the fourth quarter will lap last year's 4% price increase and the Reign pipeline fill will begin in the first quarter 2020.

Price Action

Shares of Monster Beverage were trading higher by 1.4% at $57.98.

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