Shares of Monster Beverage Corporation (MNST) dropped 4.53% as the energy drink maker finds itself facing another major lawsuit concerning the safety of its drinks. Moreover, Morgan Stanley downgraded Monster Beverage from overweight rating to equal weight on July 21.
The lawsuit filed by Angela Wheat on Jan, 2013 questions the safety of Monster Beverage products. Angela Wheat is the guardian of Jason Hamric, a Oklahoma teen, whose injury in 2011 has been linked to consumption of Monster Beverage products. However, the company has maintained that its products are safe and contain less caffeine than the coffee from Starbucks Corporation (SBUX). The company claimed that back in 2011, there were no Monster Beverage products, which matched the description provided during the legal process.
Monster Beverage has been involved in several controversies. There has been a lot of speculation on whether its energy drinks are safe for consumption especially by children and adolescents. The Food and Drug Administration is currently investigating the impact of caffeine in food and dietary supplements, which includes Monster Beverage products. The report is pending. Any undesirable changes in regulations will impact the company’s operations.
All these regulatory and litigation issues are increasing Monster Beverage’s professional service expenses, which erode earnings and margins. In the first quarter of 2014, the company incurred professional service cost of $5.0 million, up from $4.7 million in the prior quarter. Higher litigation expense eroded its operating margin during the quarter.
Monster Beverage carries a Zacks Rank #4 (Sell).
Key Picks from the Sector
Better-ranked stocks in the food industry include The WhiteWave Foods Company (WWAV), and Pepsico, Inc. (PEP). Both the companies carry a Zacks Rank #2 (Buy).