NEW YORK (TheStreet) -- Monster Beverage (MNST - Get Report) hit a new 52-week-high in intraday trading Friday following the energy drink maker's quarterly earnings beat and an expanded distribution agreement with Coca-Cola (KO - Get Report) .
For the December quarter, Monster reported earnings of $125.3 million, or 72 cents a share, compared to $76.1 million, or 44 cents a share, a year earlier. Analysts were expecting earnings of 59 cents. Net sales rose 12% from the previous year to $605.5 million.
Monster also announced that it amended an agreement with Coca-Cola to allow the beverage giant to become its preferred distribution partner globally. Monster will also become Coca-Cola's "exclusive energy play." The transaction is expected to be completed in the second quarter. Coca-Cola currently owns 17% of Monster Beverage.
Shares were up 13% to around $141 recently. The stock hit a 52-week high of of $143.89 during the session. Here's what analysts said.
Theo Brito, BTIG Research (Buy; $130 price target)
Monster delivered +40% EBIT growth (consensus +15%) as better macros, successful launches, distribution gains & local production in int'l markets resulted in significant operating leverage and lower manufacturing costs. While we remain optimistic on the company's growth prospects (thru access to Coke's network), we are now more confident on a smoother distributor transition this year and potentially higher margins long term.
Kevin Grundy, Jefferies (Hold; $132 price target)
MNST reported strong 4Q results including 3.5% revs upside vs. the Street and much better OM % (31.9% vs. 27.7%) driving a clean 13-cent beat. The call was positive with 1Q off to a strong start, no issues ahead of US distributor changes, intl. margins inflecting, and growth likely to accelerate once the KO deal closes. Yet, valuation looks full on our above consensus f-cast at 17.7x CY16e EV/EBITDA, keeping us on the sidelines. Maintain Hold, PT goes to $132.
Key takeaways from the conference call: (i) 1Q is off to a strong start -- MNST's gross sales increased +11.2% in January (+11.9% on 2-yr stacked basis); (ii) lower gas prices are helping to lift energy drink sales, though management did not point to anything else particularly notable; (iii) so far, so good ahead of US distributor transition - there has been no noticeable disruption from ABI distributors, which are performing as well as the KO/independent distributors in the US ahead of the switch to the KO system; (iv) intl. profitability continues to improve; and (v) mgmnt expects revenue growth to accelerate once the KO deal closes owing to better alignment/focus and investment, though has not quantified.
Judy Hong, Goldman Sachs (Buy; $151 price target)
We raise our EPS estimates by 30 cents -50 cents to $3.43/$4.20/$4.86 for 2015/2016/2017 in part reflecting the 4Q beat, but more importantly incorporating the impact of the KO deal starting in 2Q15 (both KO and MNST indicated the deal is expected to close in 2Q15). Our estimates assume US sales growth of 12% in 2015 (~100bps better), International FX-neutral sales growth of 27% and Non-NA margin expansion +560bps. The potential positive impact from the KO deal should ramp up more in 2016/17 as MNST transitions to the KO system in most markets, enters new markets and strengthens its broader energy drink portfolio including the newly added brands from KO.
The next catalyst should be the likely accelerated share buyback or tender announcement of $2-2.5bn -- MNST ended 2014 with a net cash balance of $1.15bn (cash + STI) and is expected to receive over $1.8bn from KO. We believe MNST will likely announce an ASR/tender offer of $2-2.5bn shortly after deal close. In addition, as MNST will still be left with net cash of $700mn+ post-deal and generate $650mn+ FCF in 2015, we see potential for an ongoing annual share buyback of nearly $1bn.
Bonnie Herzog, Wells Fargo Securities (Market Perform; $124-$126 valuation range)
MNST reported Q4 EPS of 72 cents (+63%), above our/consensus ests of $0.58/$0.59. Net sales were up a solid +8.6% on strong +11.0% total case sales volume growth with limited net price per case growth of +0.9%. International gross sales accelerated, up a solid +16.1% in 4Q as key markets in Europe as well as Japan continue to improve. Operating income (OI) for Q4 was up a very strong +43.2% to $192.9, driven by solid gross profit growth and declines in G&A/selling expenses. A lower tax rate of 34.7% (vs. last year's 42.2%) contributed $0.09 to EPS, driven by increased mix of international sales which we view as positive.
Bottom line - we remain very encouraged by MNST's LT growth prospects, particularly in international markets. However, we think valuation reflects most of the upside, particularly given the potential for minor hiccups as it transitions to the Coca-Cola system. However, encouragingly MNST's international business continues to improve and it has started FY15 off strong with January gross sales up +11.2%, which is likely driven by lower gas prices/higher disposable income in US as consumers purchase more in c-stores, as our Beverage Buzz surveys suggest. We raise our FY15/FY16 EPS ests by 24 cents/31 cents to $3.29/$3.76 and our PF ests to $3.56/$4.57, but maintain our previous valuation multiples. As a result, we raise our range by $15 to $124-$126 and recommend investors take advantage of any potential pullbacks in the stock as we remain bullish on MNST's long-term story.
TheStreet Ratings team rates MONSTER BEVERAGE CORP as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:
"We rate MONSTER BEVERAGE CORP (MNST) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, impressive record of earnings per share growth, compelling growth in net income and expanding profit margins. We feel these strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- MNST's revenue growth has slightly outpaced the industry average of 1.7%. Since the same quarter one year prior, revenues slightly increased by 7.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
- MNST has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 3.59, which clearly demonstrates the ability to cover short-term cash needs.
- MONSTER BEVERAGE CORP has improved earnings per share by 32.1% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, MONSTER BEVERAGE CORP increased its bottom line by earning $1.96 versus $1.86 in the prior year. This year, the market expects an improvement in earnings ($2.64 versus $1.96).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Beverages industry. The net income increased by 31.9% when compared to the same quarter one year prior, rising from $92.19 million to $121.60 million.
- The gross profit margin for MONSTER BEVERAGE CORP is rather high; currently it is at 54.73%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 19.12% is above that of the industry average.
- You can view the full analysis from the report here: MNST Ratings Report