BMO Capital has adjusted its outlook on Monster Beverage Corporation (NASDAQ: NASDAQ:MNST), reducing the price target from $56.00 to $54.00 but maintaining a Market Perform rating on the stock.
The adjustment follows Monster Beverage's second-quarter 2024 earnings per share (EPS) of $0.41, which was $0.04 below the consensus.
The analyst noted that this shortfall was due to a combination of softer sales and increased operating expenses, which overshadowed a slight gross margin improvement.
The report highlighted a slowdown in the beverage category, with Monster Beverage's sales growth cooling to 2.5%, a figure that falls short of the 8.4% growth anticipated by consensus.
Additionally, it was pointed out that growth in the current quarter to date has moderated even further. In response to these trends, BMO Capital has revised its estimates downward, reflecting the softer sales trajectory.
Despite the anticipated U.S. price increase scheduled for November, the analyst expressed concerns regarding the company's growth outlook.
The report suggested that any significant improvement in Monster Beverage's growth is likely to depend on a more favorable consumer environment, which currently offers limited visibility.
The analyst's comments provided a clear rationale for the revised price target, stating, "We lower estimates owing to the softer sales trajectory and reduce our target to $54."
Monster Beverage reported weaker-than-expected second-quarter results, with sales increasing by only 2.5%, falling short of expectations by 6.4 percentage points. This led Jefferies to reduce the company's share target from $61.00 to $60.00.
However, the company's management maintains a positive long-term outlook, supported by RBC Capital's analysis suggesting potential for a compound annual growth rate of 11% in the coming years.
Monster Beverage also reported record net sales of $1.9 billion in the first quarter of 2024, an 11.8% increase from the previous year, and completed a substantial $3 billion share buyback, purchasing approximately 5.4% of its outstanding common stock.
Despite these positive developments, several financial firms, including Deutsche Bank and Goldman Sachs, have adjusted their price targets due to concerns about a slowdown in the company's core US energy drink sales and higher anticipated costs.
InvestingPro Insights
As Monster Beverage Corporation navigates a cooling beverage market, real-time data from InvestingPro offers additional context to BMO Capital's analysis. With a market capitalization of $46.42 billion and a high P/E ratio of 31.58, the company stands out for its financial health, holding more cash than debt on its balance sheet—an InvestingPro Tip that underscores its resilience amidst increased operating expenses. Moreover, Monster Beverage's cash flows are robust enough to sufficiently cover interest payments, and its liquid assets exceed short-term obligations, providing further evidence of its solid financial footing.
InvestingPro data reveals a gross profit margin of 53.45% over the last twelve months as of Q1 2024, indicating efficiency in the company's operations despite the pressures of a challenging sales environment. Additionally, while analysts have revised their earnings expectations downwards for the upcoming period, Monster Beverage's revenue growth of 13.08% in the same timeframe suggests that the company retains the ability to expand its top line.
Investors considering Monster Beverage's stock may find value in the company's long-term performance, with InvestingPro Tips highlighting a high return over the last decade. However, it's important to note that the company is trading at a high revenue valuation multiple, which may be a point of caution for those concerned with near-term earnings growth. For those interested in a deeper dive into Monster Beverage's financials, InvestingPro offers additional tips, with 11 more insights available at https://www.investing.com/pro/MNST to help investors make informed decisions.
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