MNST Stock Study (4-11-23)

I recently did a stock study on Monster Beverage Corp. (MNST) with a closing price of $52.35.

M* writes:

     > Monster Beverage is a leader in the energy drink subsegment
     > of the beverage industry. The Monster trademark anchors the
     > portfolio, and notable offerings include Monster Energy and
     > Monster Ultra. The firm has also started to incubate new
     > trademarks for emerging enclaves of the energy space, like
     > Reign in performance energy. It is primarily a brand owner,
     > outsourcing most of its manufacturing to third-party
     > copackers. It primarily uses the Coca-Cola bottling system
     > for distribution after a strategic agreement through which
     > Coke became Monster’s largest shareholder (nearly 20%).
     > Most of Monster’s revenue is generated in the United States.

Over the last 10 years, this medium-size company has grown sales and EPS at annualized rates of 12.0% and 16.5%, respectively. Lines are mostly up, straight, and parallel except for EPS declines in ’21 and ’22, which is worthy of further investigation. Although higher than peer and industry averages, PTPM traces an “inverse-U” pattern over the last 10 years going from 25.1% in ’13 up to 35.7% in ’17 and back down to 24.9% in ’22 with a last-5-year average of 32.1%.

ROE has generally been less than industry averages while about even with peers over the last decade, decreasing from 33.9% in ’13 to 17.1% in ’22 with a last-5-year average of 24.0%.

The company has zero long-term debt, which makes its Debt-to-Capital (0%) much lower than peer and industry averages. M* gives the company a Standard rating for Capital Allocation while Value Line awards an A+ grade for Financial Strength. Quick Ratio is an impressive 3.68.

I forecast long-term annualized sales growth of 7% based on the following:

• CNN Business projects 12.7% YOY and 12.0% per year for ’23 and ’22-’24 (based on 19 analysts).
• YF projects YOY 12.8% and 10.5% for ’23 and ’24, respectively (18 analysts).
• Zacks projects YOY 12.2% and 10.6% for ’23 and ’24, respectively (8).
• Value Line projects 5.5% annualized growth from ’22-’27.
• CFRA projects 12.7% YOY and 11.5% per year for ’23 and ’22-’24, respectively.
• M* gives a 2-year ACE of 12.3% annualized growth while projecting 10% for the next five years in its analyst note.

I am forecasting in between the two longer-term estimates.

I forecast long-term annualized EPS growth of 12% based on the following:

• CNN Business projects 35.1% YOY and 25.9% per year for ’23 and ’22-’24, respectively (based on 19 analysts), along with 5-year annualized growth of 15.1%.
• MarketWatch projects annualized growth of 23.7% and 20.5% for ’22-’24 and ’22-’25 (23 analysts).
• Nasdaq.com projects 19.9% per year for both ’23-’25 and ’23-’26 [10, 4, and 1 analyst(s) for ’23, ’25, and ’26].
• Seeking Alpha projects 4-year annualized growth of 18.3%.
• YF projects YOY 34.2% and 17.4% for ’23 and ’24, respectively (21), along with 5-year annualized growth of 24.9%.
• Zacks projects YOY 26.8% and 17.6% for ’23 and ’24, respectively (10), along with 5-year annualized growth of 22.1%.
• Value Line projects 14.2% annualized growth from ’22-’27.
• CFRA projects 27.8% YOY, 22.6%, and 9% per year for ’23, ’22-’24, and 3-year estimated CAGR, respectively.
• M* projects long-term annualized growth of 12.5%.

I am forecasting below the entire range of long-term estimates (mean of six: 17.9%).

My Forecast High P/E is 33. Over the last 10 years, high P/E has been up, down, and up with a range of 32.7 (’19) to 56.6 (’15) and a last-5-year average of 38.7. I am forecasting near the bottom of the range (only ’19 is lower).

My Forecast Low P/E is 23. Over the last 10 years, low P/E has been up, down, and up with a range of 19.0 (’20) to 37.6 (’15) and a last-5-year average of 26.7. I am forecasting near the bottom of the range [only ’20 and ’14 (22.7) are lower].

My Low Stock Price Forecast (LSPF) is the default value of $25.50. This is 51.3% less than the previous closing price and 36.4% less than the 52-week low. The 2020 low is around $26.00, which almost makes my forecast look unreasonably extreme but from a valuation perspective (historical P/E ranges) it is not.

These inputs land MNST in the HOLD zone with an U/D ratio of 0.5. The Total Annualized Return (TAR) is 4.6%.

PAR (using Forecast Average—not High—P/E) is far less than T-bills at 1.2%. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on total annualized return (4.6%) but even that right now is much lower than I seek.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 379 studies done in the past 90 days (my study along with 63 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E, are 10.0%, 11.0%, 35.0, and 25.8. I am higher on EPS growth and lower on the other three inputs. Value Line projects a future average annual P/E of 30.0, which is lower than MS (30.4) and higher than mine (28). Overall, some MOS appears to back this study.

With regard to other data, MS high and low EPS are $3.11/share and $2.09/share compared to my $1.97 and $1.11. The $2.09, which is almost double TTM value, seems to be the result of a 2:1 stock split executed on 3/28/23. From MS raw data (outliers not removed), 260 studies are dated before 3/28/23 with a mean high EPS of $3.92/share while 182 studies are dated after 3/27/23 with a mean high EPS of $1.97/share. Also suspect is the MS Low Stock Price Forecast (LSPF) of $52.70, which is about double my LSPF and near the previous close. The same two groups of studies just defined with dates before and after the stock split have mean LSPFs of $58.67 and $44.99, respectively: a statistically significant difference [Student’s t(297) ~ 9.3, p < 0.001] albeit far less than 2x apart.

I would look to re-evaluate MNST under $35/share.