Shares of Monster Beverage Corporation MNST reached a new 52-week high of $157.66 on Nov 27, before eventually closing at $156.54. Year to date, the energy drink company has yielded a solid return of 44.7%.
Shares have soared 18.4% since the company posted solid third-quarter 2015 results on Nov 5. There are, however, several other factors that make Monster Beverage appealing to investors.
Strong Third-Quarter 2015 Performance
Monster Beverage’s third-quarter 2015 results were impressive with both earnings and revenues growing year over year. Moreover, the company provided an encouraging outlook for fourth-quarter 2015 and 2016.
Earnings surged 20.2% on the back of a 19% increase in net sales and robust margins. The increase in net sales was driven by advance purchase by consumers in anticipation of a rise in prices of some Monster Energy drinks effective from August 31, 2015. The company also reported strong sales in markets outside the U.S, particularly in Europe, the Middle East and Africa.
The top line was also driven by strong sales of new products. In order to maintain this growth momentum, the company plans to launch new products in early 2016. Moreover, the brands acquired from The Coca-Cola Company KO, which are produced as concentrates or beverage bases, are high-margin products that make significant positive contribution to sales and gross margins.
Gross margins continued to be driven by strong product sales and a favorable segment mix. Sales of non-energy brands, the price increase in August and lower cost of certain raw materials also drove gross margins.
Monster Beverage is currently working on its strategic alignment with Coca-Cola bottlers across the globe. Monster Beverage has already completed its transition with the Coca-Cola bottlers in Germany in July.
The company has reached an agreement with Coca-Cola Hellenic Group, through which Coca-Cola Hellenic will distribute Monster products across 28 countries. Monster Beverage will launch Monster drinks in Russia by 2015 end.
Monster also entered into an agreement with Household & Health Care Limited in Korea to distribute Monster brands in South Korea. Meanwhile, it is negotiating with bottlers in South and Central America and Australia. The Coca-Cola Company and its partners will act as Monster's preferred distribution partner globally, thus providing greater exposure to Monsters’ products.
International Expansion
Monster Beverage Corporation generates more than 20% of its consolidated gross sales outside the U.S. Expansion into the international market will further boost demand for Monster Beverage drinks as well as its top line. The Coca-Cola deal is already increasing Monster Beverage’s footprints in the global beverage market. The company’s entry into Germany, China and Russia is strategically important. In 2016, it plans to launch Monster in Nigeria and China.
Monster Beverage carries a Zacks Rank #3 (Hold).
Better-ranked stocks in the beverage industry include Primo Water Corporation PRMW, and Dr Pepper Snapple Group, Inc. DPS. While Primo Water Corporation sports a Zacks Rank #1 (Strong Buy), Dr Pepper Snapple Group carries a Zacks Rank #2 (Buy).
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