Monster Slumps on Possible AMA Ban Endorsement

Zacks

Shares of Monster Beverage Corporation (MNST) slumped recently on news that the American Medical Association (:AMA) may impose a ban on marketing of energy drinks.

The AMA’s House of Delegates has proposed the ban to discourage youngsters under the age of 21 from consuming such drinks with high caffeine content due to the possible health hazards. Youngsters get charged up from the caffeine and other ingredients in such stimulating drinks. AMA will be meeting this weekend to debate and possibly decide on this ban. The meeting could possibly result in a recommendation to curb sales of such stimulating drinks to youngsters.

If the ban gets through, it may significantly hurt the sales of this California-based energy drink maker, whose Monster Energy brand of energy drinks represents more than 90% of total revenue.

Other beverage giants like PepsiCo, Inc (PEP) and The Coca Cola Company (KO) also make energy drinks and may face a setback with the proposed curb on advertising of such drinks. As it is, these cola giants are seeing sluggish sales of its colas due to changing consumer preferences and increasing health consciousness. Rising obesity concerns, possible new taxes on sugar-sweetened beverages and growing regulatory pressures are also affecting PEP and KO’s carbonated beverage sales. However, unlike Monster Beverage, energy drinks make up a very small part of their product portfolio.

Forbes.com reported that these high-energy drinks have become increasingly popular in recent years with sales increasing 240% from 2004-2009. Moreover, the site reported that studies have revealed that energy drinks contain excessive amounts of caffeine. One can of a stimulant drink may contain caffeine equivalent to around 50 cups of coffee.

Monster Beverage carries Zacks Rank #5 (Strong Sell). Flowers Foods, Inc. (FLO), carrying Zacks Rank #1 (Strong Buy), is a consumer staples stock that is currently doing well.

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