Dj Monster Beverage Corp. Stock Rises Wednesday, Outperforms Market

Celsius Holdings Inc. delivered a poor earnings report on November 6. Investors had been forewarned that the company was likely to miss on the top and bottom lines, but the size of the miss was enough to send shares lower.

Celsius delivered revenue of $265.75 million, which was lower than analysts’ expectations of $267.54 million and 30% lower than the $384.8 million the company reported in the same quarter in 2023. Earnings were worse, with the company’s earnings coming in flat, missing expectations by three cents.

At the end of the trading session on November 8, CELH stock was down 8.9% for the week and approximately 47% in 2024. Consumer staples stocks have been under pressure in 2024, and that’s been particularly reflected in the entire energy drink sector. Even sector leader Monster Beverage Corp. is down about 6% for the year.

But Celsius is the worst performer by far. This comes after several years when the company, which touts its “healthy” energy drinks, outperformed the sector. However, that drove up the company’s valuation, which may be coming back to haunt investors.

Convenience Store Traffic Is Weighing on Sales

The revenue shortfall for Celsius was largely due to what it referred to as “supply chain optimization” by its largest distributor, PepsiCo Inc. . Celsius warned of this prior to the earnings report, but the extent of the shortfall was revealed during earnings.

The concept illustrates the consumer’s key role in the company’s results. Last year, Pepsi overordered Celsius products to keep up with strong demand. However, with that demand tailing off, Pepsi is taking steps to right-size its inventory.

One of the key areas that Celsius is reporting weakness in convenience stores which accounts for approximately 62% of energy drink sales. Traffic is down in 2024 and therefore sales are down.

The story gets worse for Celsius because the company was successful at raising prices as consumer were willing to pay a premium for a product that was seen as having healthy, if somewhat exaggerated, benefits. Those benefits are taking a back seat to a stressed consumer as well as more competition in the energy drink sector.

The Case for and the Case Against

There were some bright spots in the company’s earnings report. First, management reports a tighter correlation between sell-in and sell-through, which supports their belief that the situation is nearly behind. With Pepsi having an 8.5% stake in Celsius, which amounts to $550 million, both sides are incentivized to return to growth.

Second, Celsius still registered a 46% gross margin for the quarter. This is a profitable company and is becoming more profitable every year.

Third, international growth was a bright spot in the report, with international sales beating expectations and increasing year-over-year. Finally, the company has a strong balance sheet with approximately $900 million of cash or cash equivalents and virtually no debt.

But there are some short-term concerns. While the inventory situation may be getting better, it’s likely to still impact revenue for at least the next quarter or two. Also, at over 40x trailing twelve-month earnings and 39x forward earnings, CELH stock remains expensive, particularly as revenue is under pressure.

Is CELH Stock a Buy? Analysts See 80% Upside Potential

Analysts have been quick to lower their price targets for CELH stock. That said, the Celsius analyst forecasts on MarketBeat show that none of the analysts who lowered their price targets have downgraded the stock. The consensus price target is $54.40, which offers investors an upside of over 80%.

The stock does look to have found a bottom near its closing price on November 8. However, the options chain suggests that there is more bearish sentiment in the short term, which can make it a difficult stock to trade. As a long-term investment, investors may be about a quarter or two away from taking a position.

The Coca-Cola Company KO stock has rolled down 9.8% in the past month, underperforming the broader industry’s 6.3% decline. With this decline, KO shares have underperformed the broader Consumer Staples sector’s dip of 3.8% and the S&P 500’s rally of 2.7% in the same period.

Coca-Cola's stock performance also shows a notable decline from its close competitors, including PepsiCo Inc. PEP and Keurig Dr Pepper KDP, which have lost 6.7% and 9.4%, respectively, in the past month. It also reflects a significant underperformance against Monster Beverage’s MNST rally of 7.9% in the same period.

KO’s One-Month Stock Performance

At the current price of $63.36, the KO stock trades at a 13.8% discount to its 52-week high of $73.53. The current stock price reflects an 11.7% premium from its 52-week low mark. KO trades below its 50 and 200-day moving averages, indicating a bearish sentiment.

KO Stock Trades Below 50-Day & 200-Day Moving Averages

What’s Hindering Coca-Cola’s Stock Performance?

Coca-Cola’s one-month graph shows a steady decline, with most of the deterioration originating after it reported third-quarter 2024 results on Oct. 23, 2024. This reflects decreased investor confidence following its third-quarter results, which signals a revenue slowdown.

Despite exceeding the Zacks Consensus Estimate for earnings and revenues, the company reported a 1% year-over-year revenue drop. This was led by volume declines across most operating segments, as gains from improved pricing were offset by reduced concentrate sales and unfavorable currency rates.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

Coca-Cola witnessed soft volume trends in third-quarter 2024, with unit case volume moving down 1% and concentrate sales volume declining 2%. Concentrate sales volume trailed unit volume by one percentage point due to the timing of shipments. Unit volume was impacted by a slow start in July, with additional declines in China, Mexico and Türkiye.

By category, the unit case volumes for sparkling soft drinks and trademark Coca-Cola were flat year over year, supported by growth in Latin America, North America and the Asia Pacific but offset by a decline in EMEA. Unit volumes for juice, value-added dairy and plant-based beverages saw a 3% drop, led by declines in Minute Maid Pulpy in the Asia Pacific and Mazoe in Africa. Unit volumes for the water, sports, coffee and tea segment fell 4% year over year in the third quarter.

KO’s Premium Valuation

Despite the recent decline, Coca-Cola commands a high valuation, reflecting its strong market positioning, brand power and long-term growth potential compared with other non-alcoholic beverage companies. We believe that the stock is overvalued at current levels.

KO trades at a significant premium to industry peers with a forward 12-month price-to-earnings (P/E) multiple of 21.48X. The current valuation is below its five-year median of 23.7X and has surpassed the broader industry’s multiple of 20.18X.

The company’s ability to deliver on its promise of offering something for everyone to drink, with a focus on innovation and digital expansion, is crucial. While success in these areas could further strengthen its market leadership, failure could pose serious challenges for this soft drink giant. At this moment, its current valuation seems unwarranted. KO has a Value Score of D.

KO’s Estimate Revision Trend

The Zacks Consensus Estimate for Coca-Cola’s 2024 EPS was unchanged, while the estimates for 2025 witnessed a downward trend in the last 30 days. The company’s consensus mark for 2025 EPS has moved down 2% in the past 30 days.

However, revenue and EPS estimates for both 2024 and 2025 reflect year-over-year growth. For 2024, the Zacks Consensus Estimate for KO’s revenues and EPS implies year-over-year growth of 1% and 6%, respectively. The consensus mark for 2025 revenues and EPS indicates 4.1% and 4% year-over-year growth, respectively.

What Could Turn Around KO’s Graph?

While Coca-Cola has been witnessing a downtrend recently, its strong market presence, marketing prowess and commitment to innovation can turn around its performance. The company has a dominant position in the beverage industry, with more than 40% of the non-alcoholic beverage market.

As part of this transformation to a total beverage company, Coca-Cola is innovating to refine its product lineup to meet shifting consumer preferences for healthier choices and energy drinks over traditional sugary beverages. The company offers a variety of products beyond sodas, including vitaminwater, smartwater, Simply juices and Dasani. Highlights of this growth strategy include the Real Magic platform, the BODYARMOR acquisition and the launch of Coke Starlight.

Coca-Cola plans to tap into the fast-growing ready-to-drink (RTD) alcoholic beverage market with the upcoming release of Bacardi Mixed with Coca-Cola RTD cocktails in 2025. The company’s RTD offerings, including Topo Chico Hard Seltzer, Simply Spiked Lemonade, FRESCA Mixed cocktails, and Jack & Coke cocktails, have also been performing well.

Coca-Cola’s enhanced marketing model combines digital, live and in-store experiences to create unique, personalized connections with consumers. For example, during the Olympic and Paralympic Games, KO highlighted its full beverage lineup, launched fan zones and festivals, and engaged athletes through social media. Topo Chico is another success story, with global volume rising 20% in the third quarter. Coca-Cola’s focus on marketing and innovation also shows in the success of Fuzetea and emerging products like Minute Maid Zero Sugar and Sprite Chill.

Coca-Cola’s digital initiatives position it strongly to capture rising e-commerce demand, with channel growth doubling in many markets. The company is increasing investments to strengthen digital capabilities, enabling seamless execution of marketing, sales and distribution across online and offline channels. With a focus on innovation and digital growth, KO is well-positioned for long-term success.

Is Buying KO Stock a Smart Choice Right Now?

Although Coca-Cola’s third-quarter performance reflects a slowdown in revenues due to soft volumes, it looks well-poised for long-term growth, driven by its innovation, marketing and digital initiatives. KO’s strong market position and emphasis on consumer preferences have been key strengths.

Given KO’s premium valuation, investors should examine the ongoing developments to identify an optimal entry point before investing. If you already own the Zacks Rank #3 (Hold) stock, maintaining your position can be beneficial, given the long-term growth prospects and the company’s strong market position. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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