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KO to Sell Its Own Energy Drinks, MNST's Objection Ruled Out

Zacks Equity Research

The Coca-Cola Company KO and Monster Beverage Corporation MNST recently settled a dispute over the launch of Coca-Cola Energy last April. The disagreement, continuing since last October, was sparked as Monster Beverage believed Coca-Cola violated the terms under an initial agreement between them. Monster Beverage apprehended this energy drink puts the two companies in direct competition.

However, an arbitration tribunal of the American Arbitration Association cleared that the roll out and sale of Coca-Cola Energy is permitted under to the terms of Coca-Cola’s contract with Monster Beverage. It further stated that the Coca-Cola Energy products are exempted according to the non-compete provision for beverages marketed or positioned under the Coca-Cola brand. The ruling allows Coca-Cola to sell its own energy drinks in markets where it has been launched as well as in new markets across the globe.

Notably, the Coca-Cola-Monster Beverage dispute was over the contractual language of their initial partnership signed in 2015. Under the agreement, Coca-Cola bought a 16.7% stake in Monster Beverage and transferred ownership of its energy drinks business to Monster Beverage. Meanwhile, Monster Beverage transferred ownership of its non-energy business to Coca-Cola. The launch of Coca-Cola Energy led to the rise of a dispute over the terms of the initial agreement, after which both companies submitted the dispute with the arbitration tribunal for resolution.

In a bid to diversify its portfolio for increasing sales, Coca-Cola first launched its energy drink in Hungary and Spain in April 2018. Apart from Coca-Cola Energy, the company has been looking to expand in the healthy sports drink, sparkling water and coffee categories.

Coming back to the ruling, both Coca-Cola and Monster Beverage have heartily accepted the decision of the tribunal and look forward to the continuation of their partnership deal. Shares of both the companies responded positively to the news. Coca-Cola stock was up 1.3% yesterday, while Monster Beverage gained about 1.5%.

Year to date, Coca-Cola has improved 9%, while Monster Beverage has surged 31.6%. In the same time period, Monster Beverage, which carries a Zacks Rank #2 (Buy), has outperformed the industry’s growth of 12.8%. Meanwhile, Coca-Cola with a Zacks Rank #3 (Hold), has underperformed.

2 More Top-Ranked Soft-Drink Stocks

Keurig Dr Pepper Inc. KDP has an expected long-term earnings growth rate of 15.4% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Coca Cola Femsa S.A.B. de C.V. KOF, also a Zacks Rank #2 stock, has an expected long-term earnings growth rate of 9.7%.

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Coca Cola Femsa S.A.B. de C.V. (KOF) : Free Stock Analysis Report
Monster Beverage Corporation (MNST) : Free Stock Analysis Report
Coca-Cola Company (The) (KO) : Free Stock Analysis Report
Keurig Dr Pepper, Inc (KDP) : Free Stock Analysis Report
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