Last Summer Monster Beverage (MNST), which develops, markets and distributes energy drinks, inked a deal with Coca-Cola (KO) that gave Monster Coke’s International distribution network and made Monster Coke’s “exclusive energy play”.
Although us in the US are familiar with Monster energy drinks in the refrigerated section of convenience stores, the brand isn’t as successful overseas. I was recently in Hong Kong and Taiwan and saw no Monster drinks anywhere. So this deal with Coke will put the drinks in store refrigerators all around the world.
The terms of the deal were for MNST to issue shares and give KO 16.7% ownership. In return KO paid MNST $2.15 million and transfer its worldwide energy business to Monster. Now MNST has $15 per share in cash, and can either buy back its own stock or use the money to expand as a young company should.
One Year Chart
The stock market applauded the deal and sent more than 40% in the last year. But now MNST sells for 48x earnings. The P/E is very high, and assumes great gains in earnings. But right now EPS estimates read like this:
2015 $3.15 (+14% yoy)
2016 $4.00 (+27%)
2017 $4.68 (+17%)
That’s not great growth considering how high the stock is.
Fair Value
With an estimated long-term growth rate of 22% a year, I feel MNST is worth 30x earnings. That implies a $95 stock price this year, $120 next year. Although the market is in a steep decline right now, I still don’t feel MNST will get below $100. More likely somewhere in the middle of $95 and $120 could be the low point.
Sharek’s Take
Monster Energy has tremendous International opportunities. When you go into convenience stores here in the states the company controls many shelves — and provide solid returns for store owners as these drinks are quite expensive. So imagine one-to-three shelves now going into the rest of the stores all around the world. But like many stocks, this one went up too high this year and is due for a solid correction. I would be inclined to buy in between $100 and $115 which was the spot MNST made a base last Fall.
View the Earnings Table here. View the Profit History here.View the Ten Year Chart here.
