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The price of Red Bull, other energy drinks may be about to skyrocket

Ingesting 300 milligrams of caffeine before 6:00 a.m. in one shot may be about to get much costlier.

And you could blame inflation in aluminum, and energy drink leader Red Bull.

"A price increase would be preferable, and meaningfully favorable for trading in Monster shares, but we believe Monster remains committed to following Red Bull (we ascribe a slightly greater than 50/50 likelihood that Red Bull takes price, with an announcement needed before year-end)," said Stifel analyst Mark Astrachan in a new research note on Thursday.

Astrachan thinks it's logical that Red Bull takes a price increase given the elevated inflationary environment, which would open the door to Monster Beverage (and likely others in the space) jacking up prices.

Explains Astrachan, "We also cannot think of a good reason why Red Bull will not price given rising cost pressures, especially aluminum, the largest component of cost of goods sold, is up ~50% year-over-year and 10% since 2Q21 results in early August. We also think Red Bull’s overall U.S. operating margin is likely below that of Monster as it self-distributes approximately 60% of its U.S. volumes, making it more sensitive to inflation. Additionally, most other large non-alcoholic beverages companies have raised prices."

Florida, Sunoco, gas station, Monster Energy drink display. (Photo by: Jeffrey Greenberg/Education Images/Universal Images Group via Getty Images)
Florida, Sunoco, gas station, Monster Energy drink display. (Photo by: Jeffrey Greenberg/Education Images/Universal Images Group via Getty Images) (Jeff Greenberg via Getty Images)

To be sure, energy drink makers are likely feeling the squeeze on their margins.

Aluminum prices — obviously used in the production of cans that house highly potent energy drinks — has shot up by 40% this year due mostly to demand in industrial applications. Another key raw material used in energy drink production — sugar — has seen prices rise 33% on the year.

Factor in surging oil and gas prices weighing on transportation costs, it's clear energy drink makers must follow other food producers by lifting prices to protect profits.

PepsiCo Vice Chairman and CFO Hugh Johnston told Yahoo Finance Live this week the company has raised prices with no hit to consumer demand.

Stifel's Astrachan thinks any price increase by Monster would be bullish for its stock.

"We think Red Bull announcing a price increase would be meaningfully positive for Monster shares as pricing could contribute about half of current 2022 consensus sales growth (~10%) and also lift gross margin through 2022. Conversely, we think no pricing could remain an overhang on Monster shares pending a reduction in aluminum prices, if any," Astrachan says.

The analyst rates Monster shares at a Buy with a $107 price target. Shares of Monster are down 1% to $91 on the year, compared to a 16% gain for the S&P 500.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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