MNST Stock Study (7-8-24)
Posted by Mark on August 22, 2024 at 06:42 | Last modified: July 8, 2024 11:49I recently did a stock study on Monster Beverage Corp. (MNST) with a closing price of $49.75. The previous study is here.
M* writes:
> Monster Beverage is a leader in the energy drink subsegment
> of the nonalcoholic beverage market, generating two thirds
> of revenue in the US and Canada. The well-known Monster
> trademark includes brands such as Monster Energy, Monster
> Ultra, Java Monster, and Juice Monster. The firm also owns
> other energy drink brands, such as Reign, NOS, Burn, and
> Mother, and brews and distributes beers and flavored malt
> beverages following the acquisition of a craft brewer in 2022.
> Monster controls branding and innovation but outsources
> beverage manufacturing and packaging to copackers and
> finished goods distribution to bottlers in the global Coca-
> Cola system (pursuant to a 20-year agreement inked in 2015).
> Coke is the largest shareholder of Monster with a 19.5% stake.
Over the last 10 years, this medium-size company has grown sales and EPS at annualized rates of 12.5% and 14.7%, respectively. Lines are mostly up, straight, and parallel except for EPS declines in ’21 and ’22. Value Line scores the company 90 for Earnings Predictability.
Over the past decade, PTPM leads peer and industry averages while ranging from 24.9% in ’22 to 35.7% in ’17 with a last-5-year mean of 31.1%. ROE trails the industry and is just lower than peer averages while ranging from 12.4% in ’15 to 33.5% in ’14 with a last-5-year mean of 23.2%. Debt-to-Capital is much lower than peer and industry averages as the company has no long-term debt.
Quick Ratio is 4.0 per M* who gives the company a “Standard” rating for Capital Allocation. Value Line grades the company A+ for Financial Strength.
With regard to sales growth:
- YF projects YOY 9.8% and 10.1% for ’24 and ’25, respectively (based on 22 analysts).
- Zacks projects YOY 9.6% and 9.7% for ’24 and ’25, respectively (9 analysts).
- Value Line projects 5.0% annualized growth from ’23-’28.
- CFRA projects 11.3% YOY and 10.5% per year for ’24 and ’23-’25, respectively.
- M* gives a 2-year ACE of 10.9% annualized growth while projecting 8.0% for the next 10 years in its analyst note.
My 5.0% per year forecast is at the lower end of the range.
With regard to EPS growth:
- MarketWatch projects annualized growth of 13.7% and 13.9% for ’23-’25 and ’23-’26 (based on 28 analysts).
- Nasdaq.com projects 14.3% and 14.0% per year for ’24-’26 and ’24-’27 [11/4/1 analyst(s) for ’24/’26/’27].
- Seeking Alpha projects 4-year annualized growth of 13.2%.
- YF projects YOY 13.5% and 14.7% for ’24 and ’25, respectively (22), along with 5-year annualized growth of 14.3%.
- Zacks projects YOY 13.5% and 14.7% for ’24 and ’25 (11) along with 5-year annualized growth of 14.3%.
- Value Line projects 11.0% annualized growth from ’23-’28.
- CFRA projects 23.4% YOY, 16.8% per year, and 23.0% for ’24, ’23-’25, and a 3-year estimated CAGR, respectively.
- M* projects long-term annualized growth of 15.8%.
My 10.0% per year forecast is below the long-term-estimate range (mean of five: 13.7%). Initial value is ’23 EPS of $1.54/share rather than 2024 Q1 EPS of $1.59 (annualized).
My Forecast High P/E is 33.0. Over the past decade, high P/E ranges from 32.7 in ’19 to 56.6 in ’15 with a last-5-year mean of 38.6 and a last-5-year-mean average P/E of 33.0. I am near the bottom of the range (only ’19 is lower).
My Forecast Low P/E is 23.0. Over the past decade, low P/E ranges from 19.0 in ’20 to 37.6 in ’15 with a last-5-year average of 27.4. I am forecasting near the bottom of the range [only ’20 and ’14 (22.7) are lower].
My Low Stock Price Forecast (LSPF) of $35.40 is default based on initial value given above. This is 28.8% less than the previous closing price and 24.8% less than the 52-week low.
These inputs land MNST in the HOLD zone with a U/D ratio of 2.2. The Total Annualized Return (TAR) is 10.5%.
PAR (using Forecast Average–not High–P/E) is less than I seek for a medium-size company at 6.9%. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.
To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 205 studies done in the past 90 days (my study along with 84 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E, are 10.7%, 13.0%, 36.1, and 26.8. I am lower across the board. Value Line projects a future average annual P/E of 40.0 that is higher than MS (31.0) and much higher than mine (28.0).
MS high / low EPS are $2.89 / $1.58 versus my $2.48 / $1.54 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $2.60 is in the middle.
MS LSPF of $41.80 implies a Forecast Low P/E of 26.5: slightly less than the above-stated 26.8. MS LSPF is 1.3% less than default $1.58/share * 26.8 = $42.34 resulting in more conservative zoning. MS LSPF is 18.1% greater than mine, however.
With regard to valuation, PEG is 2.0 and 2.8 per Zacks and my projected P/E, respectively: a bit overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is fair at 0.95.
MOS is robust in the current study because my inputs are at or below MS and near the bottom of or below respective analyst/historical ranges. MS TAR of 15.1% is 4.6% per year greater than mine as a result.
Per U/D, MNST is a BUY under $47/share. Stock must fall to ~$41 to meet the BI TAR criterion (forecast high price ~$82).
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