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Monster Beverage's (MNST) Rally Continues, Will it Sustain?

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Monster Beverage Corp. MNST has been the beneficiary of consumers’ increasing health awareness amid the pandemic. This has led to a demand for the company’s products, which are mainly skewed toward energy and health drinks. Notably, its top line in the fourth quarter of 2020 was aided by increased at-home consumption trends, owing to a shift in consumer preferences for shopping channels and packaging options. Additionally, solid performance in Europe, the Middle East and Africa regions aided results.

Not only this, the company continues to witness momentous growth in the e-commerce, club store, mass merchandiser and grocery-related businesses. Foot traffic at its largest convenience and gas channel has been witnessing improved trends since the latter half of second-quarter 2020, which continued throughout the fourth quarter.

Backed by the aforementioned positives, shares of this Zacks Rank #3 (Hold) company have gained 55.8% year to date compared with the industry’s growth of 16.7%. It has also comfortably outpaced the Consumer Staples sector’s growth of 28.2% in the same period.

Additionally, the company’s expected long-term earnings growth rate of 13.3% and Momentum Score of B indicate that the stock is likely to retain positive momentum in the days ahead.

Factors Influencing the Upside

Monster Beverage has been experiencing continued strength in its energy drinks category, which is driving its performance. We note that the company offers a wide range of energy drink brands such as Monster Energy, Java Monster, Cafe Monster, Espresso Monster, Monster Energy Mule, Juice Monster Pipeline Punch, Juice Monster Pacific Punch, Juice Monster Mango Loco, Monster Ultra Paradise, and Monster Hydra Sport.

In fourth-quarter 2020, Monster Energy Drinks’ net sales advanced 14.8% year over year to $67.9 million. Also, sales of the energy brands, including Reign, rose 9.3% in the four-week period ended Feb 13, 2021, in the convenience and gas channel.

Management is optimistic about strength in the energy drink category with the Monster Energy brand growing significantly. Also, product launches across the Monster family will likely drive the company’s overall top and bottom lines.

Monster Beverage remains committed to product launches and innovation to boost growth. It remains on track for various launches in 2021. Management launched Reign Cherry Limeade and Reign White Gummy Bear as well as Reign Inferno, Watermelon Warlord, Monster Ultra Gold in singles and in a four-pack across the United States along with Monster Ultra Fiesta and Java Monster with Oat Milk in Canada in January 2021.

In February, Monster Green, Low-carb Monster, Monster Zero Ultra and Monster Ultra Paradise were launched in 12-ounce slim cans. Also, Monster Ultra Fiesta is now available in Great Britain, Sweden, Poland, Portugal, the Republic of Ireland and Spain. Moreover, Monster Mule was launched in Great Britain, Iceland, Austria, Belgium and Norway, which was then expanded to 10 EMEA markets.

Backed by the robust innovation pipeline and the momentum in the energy drinks category, investors continue to hold a favorable view on the stock. This is further supported by the positive estimate revisions for the company in the past 30 days.

The Zacks Consensus Estimate for first-quarter 2021 earnings has moved up by a penny to 61 cents in the past 30 days. Moreover, this suggests an increase of 17.3% from 52 cents reported in the year-ago quarter. Further, the consensus mark for revenues is pegged at $1.21 billion, indicating growth of 13.8% from the figure reported in the year-ago quarter.

For 2021, the consensus mark for earnings is pegged at $2.69 per share, suggesting year-over-year growth of 13.5%. Moreover, earnings estimates have moved north by 2.3% in the past 30 days. The consensus estimate for revenues stands at $5.26 billion, indicating year-over-year growth of 14.3%.

Moreover, Monster Beverage’s supply chain remains unaffected, with no major impact on raw material and finished product shortages. The company is also continually managing its aluminum can requirements to meet volume growth despite the current industry-wide supply constraints for aluminum cans.

Possible Headwinds

Despite the upside, Monster Beverage is not immune to the pandemic-related headwinds. It expects the pandemic-related impacts to be a heightened threat in a number of countries, including EMEA, due to the reinstitution of lockdowns and other restrictions due to a second COVID-19 wave. This may also adversely affect product introductions, moving ahead. In addition, the food service on-premise channel has been challenged.

Better-Ranked Stocks to Watch

Diageo plc DEO has an expected long-term earnings growth rate of 8.3%. The company carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Constellation Brands Inc STZ has an expected long-term earnings growth rate of 7.4%. It presently has a Zacks Rank #2.

Compania Cervecerias Unidas, S.A. CCU, also a Zacks Rank #2 stock, has an expected long-term earnings growth rate of 10.2%.

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