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U.S. Court Dismisses MNST's Lawsuit

Zacks Equity Research

A federal lawsuit by Monster Beverage Corporation (MNST) against San Francisco City Attorney Dennis Herrera was dismissed by the U.S district court. The lawsuit was filed to stop the City Attorney from conducting investigation and statewide litigation against the company for marketing highly-caffeinated energy drinks to children. This judgment will allow the state to proceed with the litigation against the company.

According to the City Attorney, pediatric studies indicate that highly caffeinated energy drinks are harmful for children and claimed that the company needs to change its marketing strategy. The marketing of energy drinks should not target young children or athletes.

Monster Beverage has been facing several legal issues related to the impact of its energy drinks on consumer health.

We note that, in June, the American Medical Association (:AMA) House of Delegates proposed a ban on marketing of energy drinks.

In Aug 2012, according to The Wall Street Journal, New York's attorney general initiated a probe to determine whether leading energy drink makers have misled their consumers about the ingredients and nutritional value of energy drinks manufactured by them. The investigation asked for information from three large companies, namely PepsiCo Inc. (PEP), Monster Beverage and Living Essentials LLC. The investigation was intended to check the amount of caffeine and other artificial ingredients added to the drinks such as fruit flavors, vitamins B, taurine and ginseng.

However, earlier this month, Monster Beverage claimed that leading energy drinks contain half the amount of caffeine compared to coffee from companies such as Starbucks Corp. (SBUX).

Monster Beverage Corporation carries a Zacks Rank #4 (Sell). A better ranked company in the beverage sector is Dr Pepper Snapple Group Inc. (DPS), carrying a Zacks Rank #2 (Buy).

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