Monster Beverage (MNST) Gains After Stifel Evaluates Huge International Opportunity

Shares of Monster Beverage (NASDAQ: MNST) are stronger early Thursday (+2.5%), benefiting from a bullish research report from Stifel analyst Mark Astrachan after eventuating international expansion prospects.

"We estimate Monster can increase international sales of its legacy business at least 3x from current levels, extrapolating from the percentage of acquired Coke energy drink sales outside the U.S. (Monster acquired Coke’s energy drink portfolio on June 12, 2015 as part of the deal whereby The Coca-Cola Company acquired a 17% stake in Monster.)," Astrachan said. "Doing so would result in 18% and 13% upside to our 2017 sales and EPS estimates, respectively."

The firm's analysis is based on details provided in the May 11, 2015 prospectus relating to the Coke deal wherein Monster disclosed the percentage of Coke's energy drink sales by major company-affiliated bottler, with Coca-Cola HBC (Central & Eastern Europe), Coca-Cola Enterprises (Western Europe), and Coca-Cola Amatil (Australia/New Zealand) accounting for 34% of Coke energy drink sales, compared to those regions accounting for approximately 15% of Monster’s current sales.

Overall, Coke’s energy drink business derived 63% of 2014 sales from outside the U.S., compared to 23% for Monster, the analyst highlighted.

"We believe the level of familiarity of large Coke bottlers with selling energy drinks will help accelerate sales of Monster in markets where the brand is underpenetrated with existing, non-Coke distribution (e.g., Amatil territories) and/or not a focus brand for existing Coke bottlers (e.g., Coke HBC)," Astrachan said.

The firm update estimates for the acquired Coke brands, per the prospectus, to account for more operating profit ($150mm in 2014, compared to $100mm+ when the deal was announced), with a higher gross margin (88.5% versus an estimated 70.0%), and 1.0mm fewer shares issued to Coke than expected (34.0mm compared to an estimated 35.0mm). They also reduce 2Q15 sales growth estimate for transition-related disruptions and increase 2H15 and 1H16 estimates to reflect an anticipated 5% price increase on 90% of Monster’s legacy U.S. portfolio, adding approximately 300bps to run-rate sales growth. Accordingly, they maintain 2015E EPS of $3.09 and lift 2016E and 2017E EPS to $3.97 (was $3.87) and $4.82 (was $4.62), respectively.

The firm reiterated a Buy rating and $165 price target on MNST.

For an analyst ratings summary and ratings history on Monster Beverage click here. For more ratings news on Monster Beverage click here.

Shares of Monster Beverage closed at $132.96 yesterday.

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