Market Happy With Monster Quarter From Monster Beverage
After the close, energy-drink maker Monster Beverage (MNST) - Get Report reported a monster quarter, as it straightened out its distribution problems. I believe the stock can go higher.
In June, Coca-Cola (KO) - Get Report paid $2.15 billion to acquire a 16.7% stake in Monster as part of an asset swap. Coke became Monster's preferred distributor. But two months later, the deal caused major inventory disruptions. As Monster transitioned to Coke's distribution network, retailers ran out of product. But by quarter end, the partners were able to iron out any problems and got the shelves restocked.
Sales rose 19% to $756.6 million. The company earned $174.6 million, or 84 cents a share, up from $121.6 million, or 70 cents a share, a year earlier. Gross margin increased to 61.5% from 53.8%.
The deal allows Coke to distribute Monster's products to 28 countries, with a launch in Russia by the end of this year. The partners are still planning to launch in China and are working out the details right now. Because of the Coke deal, Monster is taking market share from rival Red Bull in terms of cases and units.
Monster is also talking to McDonald's (MCD) - Get Report about carrying Monster Beverages in its U.S. restaurants. The companies are testing out the idea in 20 restaurants.
Given these results, Wall Street estimates seem low. For the remainder of the year, the consensus is looking for the company to end with gross margin of 57%. Looking at this quarter, the company was able to boost its margins to 61.5% through the deal with Coke. Margin estimates are way too low.
Furthermore, the company was able to grow sales 19% in the third quarter. But analysts are expecting only 16.8% revenue growth for the fourth quarter. Again, that's too low.
And how about fiscal 2016? Analysts believe the company will only grow 16%. That seems too low considering Monster is about to launch in Russia and is rolling out more territories just about every quarter.
Add it all up and next years earnings estimate of $3.91 and the $3.171 billion revenue estimate is low. Analysts will have to boost estimates all year and the stock should have a monster year as analysts spend the year raising numbers.
TheStreet Ratings team rates Monster a Buy with a score of B+. You can view the full analysis from the report here: MNST
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.