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UPDATE: Morgan Stanley Reiterates On Monster Beverage On Strong 1Q Margins, Weak April Sales

Dwight Einhorn

In a report published Friday, Morgan Stanley analyst Dara Mohsenian reiterated an Overweight rating on Monster Beverage (NASDAQ: MNST), but lowered the price target from $85.00 to $82.00.

In the report, Morgan Stanley noted, “MNST Q1 EPS of $0.55 was above our on-consensus $0.49 estimate on a ~7% operating profit beat vs. consensus with better than expected margins and 2 cents of tax favorability, offsetting 1% topline downside. Q1 sales were -1% below consensus, with US gross sales up +10.6% (+11.8% DSD growth and a –9.5% warehouse decline) and international up +10.4%.

"Gross margins were strong, up 145 bps y-o-y (+90 bps above consensus), benefitting from product mix (higher sales of lower cost Ultra products), lower freight, and Peace Tea/24-pack pricing. SD&A as a % of sales was down 245 bps y-o-y (130 bps favorable vs. consensus), driven by a 280 bp y-o-y reduction in selling expenses, as MNST pulled back on US promotional gear and has tightened its focus on international promotion, sampling, and sales force spending.

"MNST noted EMEA was profitable for the first time, driven by more disciplined expense management, with GM's internationally still down y-o-y. Favorable margin drivers generally seem sustainable and should further by aided by local production commencing in Japan. Post the Q1 beat, our EPS is unchanged, with lower topline forecasts offset by higher margins and a lower tax rate, but we do expect consensus EPS to move up.”

Monster Beverage closed on Thursday at $66.12.

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