Initiatives for this year include the rollout of Farmstand, a fruit-vegetable juice line from Tropicana. This is expected to be one of PepsiCo’s biggest product launches since 2009 and adds to their growing portfolio of still beverages that are more nutritional and functional. Activist investor Nelson Peltz has been pushing the company for a possible buyout of international snack company, Mondelez International. It would seem Coca-Cola needs Mondelez more. Monster Beverage Corp (NASDAQ:MNST) itself has long been rumored as a buyout target for one of the big soda companies.
The return of the monster
Despite a runup of 77% from July 2011-2012, this last year Monster Beverage Corp (NASDAQ:MNST) stock has dropped 7.23%. It has no debt and operating cash flow of $296.8 million. The company has a lofty trailing P/E of 34.67 but that has come down from 43.44 last summer and the forward P/E comes down to 25.42. The PEG is the lowest of these three at 1.91.
The short interest has grown from last summer at under 1% to over 5% partly due to continuing controversy over energy drinks’ safety with a Maryland lawsuit underway concerning the death of a 14 year old girl who died after drinking Monster drinks. It was later found she had an underlying heart condition. Also, the city of San Francisco is suing the beverage maker for marketing to children.
A major reason for share price decline is a decline from last summer’s quarterly earnings growth rate of 38.30% yoy to -16.60% and missing bottom line expectations for three quarters. Part is attributable to increased legal and travel expenses, costs associated with international expansion, and promotion of new Monster products, like the very popular vanilla protein shake.
However, both Stifel Nicolaus and Sun Trust believe the stock will start to climb again. Sun Trust gives it a Buy with a price target of $75 arguing improving margins, decreasing headline risk, and easing comps. Analysts estimate a 15% five year EPS growth rate but with these international expansions and new products it may be higher going forward.
The Foolish takeaway
Monster Beverage Corp (NASDAQ:MNST) is reporting on August 7. Expenses should come down over the next few quarters and with kids back in college soon expect more consumption. The global expansion and new products are good news while competitors The Coca-Cola Company (NYSE:KO) and PepsiCo, Inc. (NYSE:PEP) underestimate and underpromote their energy drinks.
The article This Monster Is Returning From The Dead originally appeared on Fool.com and is written by AnnaLisa Kraft.
AnnaLisa Kraft has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola, Monster Beverage, and PepsiCo. The Motley Fool owns shares of Monster Beverage and PepsiCo. AnnaLisa is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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