Monster Beverage Corp (MNST), Coca-Cola Enterprises Inc (CCE): Beverage Company Is in Prime Position

PepsiCo’s diversification allows it to spend heavily on introducing new products without having to worry about a cyclical downturn affecting cash flows. This is a tremendous advantage to have in an industry where marketing spend is crucial to success.

While PepsiCo has enjoyed a high degree of success in launching energy drinks, Coca-Cola has been a miserable failure in the U.S. market. Its business is centered around carbonated soft drinks, where it remains the number one company in the world.

However, Coca-Cola’s attempts to break into the energy drink market have been unsuccessful thus far. As domestic cola consumption enters a secular decline, Coca-Cola Enterprises Inc (NYSE:CCE) is in desperate need of diversifying away from its cola line. As a result, Monster Beverage may be a good acquisition target if it ever gets cheap enough.

How Cheap?

Monster Beverage Corp (NASDAQ:MNST) currently trades at 15x EV/EBITDA, 25x earnings, and 36x free cash flow. These are rich multiples, but it’s difficult to determine just how cheap or expensive the company is based on those figures.

Instead, take a look at normalized pre-tax earnings. I believe the company will earn $840 million before tax in a normal year by 2016. The company currently trades at about 10x that figure. If you believe that Monster can continue growing at a high rate beyond 2016, then it may be a good pick-up at $50 per share.

However, I’m going to stick with Coca-Cola Enterprises Inc (NYSE:CCE) and wait for it to get a little cheaper before diving in.

The article Beverage Company Is in Prime Position originally appeared on Fool.com and is written by Ted Cooper.

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