The energy drink sector is certainly the fastest-growing sector of the carbonated beverage market, and no company is more representative of the fortunes of the sugary stuff than Monster (MNST).
Energy drinks are extremely popular with millennials. Perhaps, after being raised at the height of the great Coca-Cola (KO) vs. Pepsi (PEP) wars, and at a time when soft drinks were readily available in school halls, it shouldn’t come as much of a surprise that the nurtured sweet tooth of millennials would remain intact, even with healthy choices abounding.
Baby boomers and Gen X may flock to Starbucks (SBUX), but Gen Y prefers its energy in a Monster or Red Bull can.
And few beverage companies have seen more energetic growth in the past few years. MNST easily controls 40% of this dynamic sector, second only to Red Bull. And it’s hot on the Bull’s tail.
Ironically, MNST started life as a newish product in the Hansen’s Natural Soda family, which had been a solid niche brand in the soft drink market for years. But as its name implies, the Monster brand couldn’t be contained, and Hansen was eventually renamed Monster for the brand that overtook every other label in the Hansen family.
This year marked the newest milestone in Monster’s growth — a major deal with Coca-Cola (KO).
KO Deal Means Monster Growth for MNST
In August 2014, Monster and Coca-Cola announced a strategic partnership where KO would take a 16.7% share of MNST, and Monster would transfer all its non-energy drinks to Coca-Cola, who would in turn transfer its energy drink portfolio to MNST. KO would also become the exclusive distributor for MNST and its products, opening up its global distribution channel.
This deal has the makings of a real blockbuster for MNST.
Certainly, it may help KO (and it’s expected that this deal will constitute 13% of KO’s North American profits this year), but Coca-Cola is such a diversified company that a deal like this isn’t going to have the same effect as it will on a focused player like Monster.
The partnership officially began in June, so second-quarter numbers were a bit jumbled as the company transitioned from lone wolf status to the strategic partner of one of the most iconic brands in the world.
But the Q2 numbers show that MNST is still expanding. The sector grew by 10% in the first half of this year in the U.S., and MNST sales grew at about the same rate.
Outside of the U.S. (where the KO deal has the greatest impact for MNST), Monster boasts a 28% share of Canada’s market and a 32% market share in Mexico.
And Europe also yields huge potential as a market that has yet to be fully exploited by Monster. It’s there (and places established under Coca-Cola’s giant distribution network) where this deal has enormous opportunity for the energy drink firm. If Monster had to find distributors for each of the developed and developing markets it plans to enter, it would break the bank for what could be far from ideal results.
But with Coca-Cola taking up the point, Monster is in good hands.
What’s more, if this deal works well, there’s also the real possibility that KO will step in and buy the rest of MNST once it is certain that the energy drink phenomenon has the stamina to be a sustainable long-term business.
This is certainly a win-win deal, but MNST stock is the true victor here, and it’s a steal at these levels.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
