Dj Monster Beverage Corp. Stock Rises Friday, Still Underperforms Market

Shares of Monster Beverage Corporation MNST have shown strength in the past three months. The stock has gained 14.3% against the industry’s 8% decline in the same time frame.

The company has been benefiting from the expansion of its energy drinks category and product launches. It has launched various products and expanded distribution across the international markets.

Let us delve deeper.

Analyzing Monster Beverage’s Strengths

Monster Beverage has been driving performance for a while now. In third-quarter 2024, the Monster Energy Drinks segment's net sales grew 0.8% year over year to $1.72 billion. On a currency-adjusted basis, sales for the segment rose 3.9%.

The company offers a wide range of energy drink brands such as Monster Energy, Monster Energy Ultra, Monster Rehab, Monster Energy Nitro, Java Monster, Punch Monster, Juice Monster, Monster Hydro Energy Water, Monster Hydro Super Sport, Monster Super Fuel, Monster Dragon Tea, Reign Total Body Fuel, Reign Inferno Thermogenic Fuel, Reign Storm, True North, NOS, Full Throttle, Burn, Mother, Nalu, Ultra Energy, Play Relentless, BPM, BU, Gladiator, Samurai, Live+, Predator and Fury.

Product innovation plays a significant role in the company's success as well. During the third quarter of 2024, the company launched Monster Ultra Violet in Australia. It launched Monster Reserve, Orange Dreamsicle, Juiced Aussie Lemonade, Juiced Bad Apple, Juiced Mango Loco, Ultra Black, UltraGolden Pineapple, Ultra Peachy Keen, Ultra Rosa, Ultra Strawberry Dreams and UltraWhitein several countries of EMEA. Further launches are planned within all brands throughout EMEA this year.

MNST also launched Papillon in a 500-ml aluminium bottle in Japan and Ultra Peachy Keen in Singapore. The company intends to launch Predator in various additional provinces in 2025. In India, Monster Beverage extended the Predator Gold Strike carbonated 250 ml PET bottle beyond the Delhi region to the Northeast states this July and Madhya Pradesh this September. Management is optimistic about the long-term prospects for the Monster label in China and India, and about the expansion of Predator in these countries.

In addition, the company continues to benefit from its pricing actions across various regions to negate the impacts of rising commodity costs and inflation. Management has been reviewing opportunities for price increases internationally. The company has been making a roughly 5% price increase on its core brands and packages, effective Nov. 1, 2024, in the United States. These have been aiding its gross margin for a while. Gross margin expanded 200 basis points (bps) year over year to 53.2% in the most recent quarter.

High Costs: A Major Concern for MNST

On the flip side, Monster Beverage has been witnessing higher costs for a while now. In third-quarter 2024, operating expenses grew 9.9% year over year due to elevated costs associated with sponsorships and endorsements, increased payroll expenses and expenses related to intellectual property claims. As a percentage of sales, operating expenses expanded 210 bps to 27.6%. Also, selling expenses, as a percentage of net sales, increased 90 bps year over year to 10.4%.

Further, general and administrative expenses, as a percentage of net sales, jumped 150 bps year over year to 12.8%. These expenses may continue to weigh on the company’s overall profitability. Its earnings lagged the Zacks Consensus Estimate and fell year over year during the last reported quarter.

In addition, management highlighted that the energy drink category in the United States witnessed lower growth rates, in the convenience channel, during the last reported quarter. A tighter consumer spending landscape for some income groups and weak demand also remain concerning. Adverse foreign currency exchange rates continued to act as deterrents.

MNST Stock Valuation

Monster Beverage’s stock is trading at a premium valuation relative to the industry. Going by the price/earnings ratio, the stock currently trades at 29.41 on a forward 12-month basis, higher than 19.52 of the industry. Also, the stock is trading higher than its five-year median of 28.89.

Final Words on MNST Stock

The company's pricey valuation and the aforesaid headwinds signal a cautious approach for investors willing to enter at this level. For existing investors, holding onto the stock seems to be a prudent choice, considering the company’s long-term growth potential and robust strategies.

In addition, analysts seem quite optimistic about the company. The Zacks Consensus Estimate for 2024 sales and earnings per share is currently pegged at $7.48 billion and $1.62, respectively. These estimates show corresponding growth of 4.7% and 4.5% year over year. The stock’s Zacks Rank #3 (Hold) supports our thesis.

Stocks to Consider

Freshpet, Inc. FRPT, a pet food company, has a trailing four-quarter average earnings surprise of 132.9%. FRPT currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Freshpet’s current financial-year sales and EPS indicates growth of 23.4% and 193.3%, respectively, from the prior-year levels.

Vital Farms VITL, which provides pasture-raised products, currently sports a Zacks Rank of 1. The consensus estimate for Vital Farms’ current financial-year sales and EPS indicates growth of 31% and 40%, respectively, from the prior-year levels.

VITL has a trailing four-quarter average earnings surprise of 82.5%.

Nomad Foods Limited NOMD, manufacturer and distributor of frozen foods, currently carries a Zacks Rank #2 (Buy). NOMD has a trailing four-quarter average earnings surprise of 3.1%.

The Zacks Consensus Estimate for NOMD’s current financial-year sales and EPS indicates growth of 4.9% and 25.5%, respectively, from the year-ago figures.

Zacks Investment Research

A smart beta exchange traded fund, the Invesco S&P 500 Equal Weight Consumer Staples ETF (RSPS) debuted on 11/01/2006, and offers broad exposure to the Consumer Staples ETFs category of the market.

What Are Smart Beta ETFs?

The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.

Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.

On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as smart beta.

Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other such characteristics.

Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.

Fund Sponsor & Index

The fund is managed by Invesco. RSPS has been able to amass assets over $304.66 million, making it one of the average sized ETFs in the Consumer Staples ETFs. This particular fund, before fees and expenses, seeks to match the performance of the S&P 500 EQL WEIGHT CONSUMER STAPLES INDX.

The S&P 500 Equal Weight Consumer Staples Index equally weights stocks in the consumer staples sector of the S&P 500 Index.

Cost & Other Expenses

Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.

With on par with most peer products in the space, this ETF has annual operating expenses of 0.40%.

The fund has a 12-month trailing dividend yield of 2.24%.

Sector Exposure and Top Holdings

Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it's still important for investors to research a fund's holdings.

Representing 100% of the portfolio, the fund has heaviest allocation to the Consumer Staples sector.

Taking into account individual holdings, Lamb Weston Holdings Inc (LW) accounts for about 3.31% of the fund's total assets, followed by Philip Morris International Inc (PM) and Monster Beverage Corp (MNST).

RSPS's top 10 holdings account for about 28.5% of its total assets under management.

Performance and Risk

Year-to-date, the Invesco S&P 500 Equal Weight Consumer Staples ETF has lost about -0.60% so far, and it's up approximately 4.94% over the last 12 months (as of 11/20/2024). RSPS has traded between $30.08 and $32.93 in this past 52-week period.

RSPS has a beta of 0.59 and standard deviation of 13.50% for the trailing three-year period. With about 39 holdings, it has more concentrated exposure than peers.

Alternatives

Invesco S&P 500 Equal Weight Consumer Staples ETF is a reasonable option for investors seeking to outperform the Consumer Staples ETFs segment of the market. However, there are other ETFs in the space which investors could consider.

Vanguard Consumer Staples ETF (VDC) tracks MSCI US Investable Market Consumer Staples 25/50 Index and the Consumer Staples Select Sector SPDR ETF (XLP) tracks Consumer Staples Select Sector Index. Vanguard Consumer Staples ETF has $7.14 billion in assets, Consumer Staples Select Sector SPDR ETF has $16.23 billion. VDC has an expense ratio of 0.10% and XLP charges 0.09%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Consumer Staples ETFs.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

Zacks Investment Research