Morgan Stanley Needs An 'Energy Boost,' Upgrades Monster Beverage

The bullish case for Monster Beverage Corp MNST can now be made after prior overhanging concerns have played out and it is now time for an "energy boost," according to Morgan Stanley.

The Analyst

Dara Mohsenian upgraded Monster Beverage from Equal-Weight to Overweight with a price target lifted from $70 to $78. The stock was also named a Morgan Stanley "Top Pick."

The Thesis

Monster Beverage's outlook over the past few years has been previously impacted by two notable headwinds, Mohsenian said: The safety of energy drinks resulted in U.S. top-line growth slowing down from a high-single-digit growth rate to a 3% to 4% range and the company had difficulties in competing against Red Bull and Bang.

Morgan Stanley downgraded Monster's stock for the first time in nearly 2015 in 2018 from these headwinds but is now confident the prior concerns have "played out." In fact, there is reason to believe U.S. topline can re-accelerate to around 5% in 2020 and 6% in the longer term.

The research firm's proprietary "AlphaWise survey" and scanner data trends point to favorable trends among consumers. Some of the highlights include younger consumers saying in a survey they will consume more energy drinks and consumption trends favor traditional energy brands like Monster and Red Ball over new entrants

Finally, Monster's stock valuation looks "compelling" as it's trading around one standard deviation below its historical average of 33.7 next 12 months P/E since 2014 and two standard deviations below its last-five-years average premium to high-growth CPG peers.

Price Action

Shares of Monster Beverage were trading higher by 2.03% Monday at $67.96.

Related Links:

Benzinga's Top Upgrades, Downgrades For February 3, 2020

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