Monster Beverage: Upside Is Attractive At This Valuation

Core Viewpoint - Monster Beverage (MNST) has experienced disappointing results leading to a significant decline in share price, but the company is expected to recover due to historical trends, visible catalysts, and international performance [2][3]. Financial Performance - MNST's revenue growth fell sharply to 2.5% in 2Q24 from previous low-teen percentages, with EPS growth slowing to 5% [3]. - July global sales increased by only 5.9%, indicating a potential decline of ~3% on a same-day basis, suggesting ongoing demand weakness into 3Q24 [3]. Market Dynamics - The energy drink category in the US is not in structural decline, with the current slowdown attributed to macroeconomic factors such as high interest rates and inflation affecting consumer spending [3]. - International markets, particularly Europe, have shown signs of recovery, with MNST's international growth at 14% on a local currency basis [5]. Growth Catalysts - MNST plans to launch new products globally, including Ultra Vice Guava, and implement a 5% price increase on core brands in 2H24, which is expected to support revenue growth [5]. - The company is also seeing robust performance in China following the rollout of Predator Gold Strike [5]. Margin and Valuation - Gross margins are expected to improve as supply challenges are resolved and production efficiencies increase, with commodity prices beginning to decline [6]. - The stock is currently trading at 27x forward PE, with an expected growth of 5% in FY24 and a gradual improvement to 10% by FY26, suggesting attractive upside potential [12][14].