Monster Beverage: Time to Buy?

While Yum Brands (YUM) may be giving up on its China business, McDonald’s Corp. (MCD) is lovin’ the results of its latest tests. By now you’ve probably heard about the fast food giant’s move to all-day breakfast, but that’s not the only change happening under the golden arches.

At 20 locations across five states, McDonald’s is now serving Monster Beverage Corp.‘s (MNST) namesake energy drinks. So far, McDonald’s has seen positive results, so it very well could start selling Monster energy drinks at its 14,000 outlets nationwide. According to analysts at Evercore ISI, this move could add as much as $1.5 billion to Monster’s U.S. revenues.

Unsurprisingly, MNST shares popped on the news, and I see further upside from here.

Right now, Monster is dominating the soft drink market, at a time when overall soda sales are flat. In 2014, Monster Beverage’s carbonated soft drink volume rose 7%, the most in the industry. Monster’s only direct competitor, Red Bull, posted a 5.6% increase. Monster Beverage is also ranked at No. 15 on Forbes’ list of most innovative companies, and topped the Food and Drink category for best managed companies. Meanwhile, Monster remains a predominantly domestic brand, with nearly 80% of its net sales coming from the U.S.

Not to mention, Monster has a sweet deal with The Coca-Cola Company (KO). Earlier this year, Coca-Cola acquired a 16.7% stake in Monster and took control of its distribution system. Coca-Cola also transferred ownership of its line of energy drinks (including NOS and Full Throttle) to Monster Beverage. In exchange, Monster transferred its non-energy businesses (including Hansen’s Natural Sodas and Peace Tea) to Coca-Cola.

As a result, Monster Beverage is now focusing more on its core energy drink business, and it will benefit from Coca-Cola’s extensive distribution and bottling system. And, consider Coca-Cola’s strong relationship with McDonald’s, it only seems natural that the fast food chain is exploring its options with Monster.

I consider MNST a B-rated Buy; click here to read my stock report card.

 

Sincerely,

Louis Navellier

Louis Navellier

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