Monster Beverage cut to sell because it's 'no longer...a high growth story'

MW Monster Beverage cut to sell because it's 'no longer...a high growth story'

By Steve Gelsi

Truist Analyst Bill Chappell says Wall Street is 'overoptimistic' about energy drink maker's gross margin recovery.

Monster Beverage Corp. was downgraded two notches to sell from buy at Truist Securities because the energy drink maker is no longer seen as a high-growth business, analysts said.

Truist analyst Bill Chappell reduced his price target on Monster Beverage $(MNST)$ to $46 a share from $65.

Monster Beverage's stock fell 3.4% in premarket trading.

He skipped a downgrade to hold and went directly to a sell rating partly because Wall Street remain too bullish on gross margin recovery despite headwinds in the sector.

"We see no reason why the stock should continue to hold a super premium multiple to its multinational beverage peers," Chappell said.

Although it remains a great company, "we believe Monster's reach of the U.S. energy category has reached its limits," he said.

The company has launched about 60 brand extensions in the past five years, but none have had the impact of Monster, Monster Zero Sugar, and Java Monster, which Chappell described as the company's big three.

"We do not believe the core Monster brand (or Reign or Bang) can tap into the newer consumers to the category as it had in the past," he said.

Monster's organic growth in the U.S. is already trending in the mid-single-digits and "we do not believe there is a clear way to return to high-single- or low-double-digit growth in the foreseeable future."

While management has signaled it may raise prices this year in a move that could increase revenue performance, investors are increasingly focused on volume growth and annual price increases have not been the norm in the energy beverage category, he said.

Meanwhile, Monster Beverage's gross margin has dropped to 53% in 2023 from 59% in 2019.

While some of this was caused by increased input costs and supply chain disruptions, it's also structural due to the growth profile of the company, he said.

Prior to Thursday's moves, Monster Beverage stock has dropped by 5.7% in 2024, compared to a 6.3% rise by the S&P 500 SPX.

-Steve Gelsi

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April 25, 2024 08:55 ET (12:55 GMT)

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