A Monster Idea

12/09/2015 7:00 am EST


Michael Cintolo

Vice President of Investments and Chief Analyst, Cabot Heritage Corporation

Back in 2012, Hansen’s Natural, a juice and natural soda company founded in the 1930s, finally faced reality and changed its name to reflect its energy drink division, explains Mike Cintolo, editor of Cabot Top Ten Trader.

The firm became Monster Beverage (MNST); the Monster brand was producing 90% of the company’s revenue and the name change made sense.

Monster took another huge step in August 2012 when it inked a deal with the Coca-Cola Company (KO), giving its legacy juice and natural soda business to Coke and getting Coke’s small energy drink line in return.

Coke also took a 16% stake in Monster, a move that promised big synergies by giving Monster access to Coke’s global distribution network and paid $2.15 billion to Monster.

The company’s November 6 quarterly earnings report provided evidence that these moves are paying off, as revenue increased 19% and earnings were up 20%, soundly beating expectations.

The increase in revenue reflected Monster’s first full quarter owning Coke’s energy drink brands and a surge of buying ahead of an announced price increase.

Analysts are also looking ahead to Monster’s move into China and other global markets and to the transition of distribution to Coca-Cola’s network.

Monster, which has nearly 1,400 institutional sponsors, is no secret, but it’s still making positive changes and enjoying early support from a $500 million stock buyback made possible by the company’s cash windfall from Coke.

MNST, which made a nice run from $64 in August 2014 to $144 in February 2015, had been trading sideways through much of 2015, rallying to $156 in August but pulling back below $130 in October.

The stock gapped up to $150 after its November 6 quarterly report and recently finished at all-time highs (and completing a cup-shaped rally in the process).

We think MNST looks like a buy on a pullback to $155 or so, with a protective stop around its 50-day moving average, now just above $140.

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