With the constant ups and downs of the industry, due to new lawsuits and regulation threats, the energy-beverage industry reminds me a lot of the tobacco industry. The FDA has already forced energy-drink makers to change labeling practices and various health associations are shouting about health concerns. Let’s not forget the lawsuits that continue to sprout up across the nation.
The latest news to plague the energy drink industry includes a study by the American Heart Association (AHA) that suggests that energy drinks might be linked to to an increase in blood pressure and changes in the heart’s rhythm.
The association claims that…
Consumption of energy drinks is a rising public health problem because medical and behavioral consequences can result from excessive caffeine intake. A growing body of scientific evidence documents harmful health effects of energy drinks, particularly for children, adolescents and young adults.
The FDA is still after the tobacco industry, now threatening to ban menthol cigarettes, which I think is just another great buying opportunity for Lorillard Inc. (NYSE:LO). Freedom of choice is part of the American Dream. I find it hard to believe the FDA will ban menthol cigarettes or that it will ban energy drinks.
One of the big pluses for tobacco investors is that these companies pay impressive dividend yields, with the major domestic operators paying near 5% yields. I think one of the big draws for energy-drink investors, at least in the interim, will be growth opportunities
Monster Beverage Corp (NASDAQ:MNST) saw revenue up over 20% in 2012 as it continued to innovate with new product introductions and entry into new markets. While there are some concerns over what’s to come for Monster in the U.S., the company is expanding internationally, launching products in Peru, Singapore and Chile of late, and planning to enter major parts of Central and Eastern Europe this year.
By dollars, Red Bull is the industry leader, but by volume, Monster Beverage Corp (NASDAQ:MNST) wins out. In dollars, Red Bull has a 34.1% market share and Monster at 29.5%. In volume, Monster has 38% of the market share and Red Bull 25%.
Big tobacco
Altria Group Inc (NYSE:MO) spun-off its international segment as Philip Morris International Inc. (NYSE:PM) in 2008. Altria now owns 50% of the U.S. tobacco market. Its staple brand is Marlboro, which is the top brand in the U.S. Altria also has a robust smokeless portfolio, thanks to its 2009 acquisition of UST.
Altria Group Inc (NYSE:MO)’s 2Q EPS was $0.62, versus $0.59 in 2Q 2012, where shipment volume was down 7%. But Altria hopes that smokeless tobacco will be a bigger part of volumes going forward, with expectations for volume growth in the mid-single digits for smokeless tobacco in 2013. With its leading position in the market, Altria has the unique ability for leading the pricing moves.
Menthols
Lorillard Inc. (NYSE:LO) is another major player in the U.S. tobacco industry. The company posted 2Q EPS of $0.81, compared to $0.73 for the same period last year and beating consensus estimates. The company did this, beat estimates, even as domestic volume fell 2%.
Lorillard Inc. (NYSE:LO)’s top brand is Newport, which is also the second-best selling cigarette brand in the U.S., which also happens to be a menthol brand — hence the reason the FDA menthol-ban scare is making Lorillard a great buying opportunity. Lorillard owns upwards of 14% of the U.S. market, third behind Altria Group Inc (NYSE:MO) and Reynolds American, Inc. (NYSE:RAI). Newport made up nearly 88% of Lorillard’s total volume as of 2012.
Bottom line
The three major U.S. tobacco companies have outperformed the S&P 500 impressively over the past decade…
And even with the likes of various lawsuits and allegations directed at the energy drink market, Monster Beverage Corp (NASDAQ:MNST) is proving to be just as resilient, with a recent pullback due to overhang, but again, I think the pressure in the stock is overdone…
Analysts put the long-term (five-year) annualized EPS growth rate for the company at 18%. And the stock trades at 25 times forward earnings, with no perfect competitors in the public markets. I like Monster for the long term, and while we’re at it, it might be worth adding Lorillard Inc. (NYSE:LO) given its 5% dividend yield and cheap valuation compared to Altria Group Inc (NYSE:MO).
Marshall Hargrave has no position in any stocks mentioned. The Motley Fool recommends Monster Beverage. The Motley Fool owns shares of Monster Beverage.
The article The Tobacco Industry Redux? originally appeared on Fool.com.
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