Monster Beverage embarks on a repurchase plan

Is the impact from the lawsuit overblown?

By Stock Traders Daily Nov 19, 2012 11:37AM

ImageSource PictureQuestBy Barry S. Cohen, Stock Traders Daily


Perhaps sensing a bargain, Monster Beverage (MNST) said last week its board of directors has authorized a new share repurchase program for up to $250 million of the company's outstanding common stock. Shares of the Corona, Calif. maker of energy drinks have been sliding lately. Is the Monster board onto something?

Monster investors may be backing away from the stock because of a recent lawsuit against the company. It was filed by the mother of a 14-year-old Maryland girl who died in December from a heart arrhythmia after drinking large cans of Monster Energy on two consecutive days. The lawsuit charges that Monster failed to warn about the risks of its energy drinks.


A spokeswoman for the company quickly came to Monster's defense, emphasizing that its products were safe and not the cause of the teenager's death. Monster CEO Rodney Sacks went even further, stating, "There is not a shred of information of which causally links Monster to these adverse events."


Maybe not, but the Maryland teenager is one of five people who may have died over the past three years after drinking Monster Energy, which is high in caffeine, according to incident reports recently released by the Food and Drug Administration. That doesn't mean the drink is at fault. The FDA reports merely state the facts. What the agency doesn't do is try to establish any link between Monster Energy and the deaths or other health problems.


Whatever the case, a lot of money is at stake here. Energy drinks are among the fastest-growing products in the beverage sector. It's estimated that U.S. retail sales of the drinks rose 16% in 2012 to $8.9 billion, accounting for 12% of the carbonated-soft-drink category.


Monster leads in the U.S. by volume, ahead of Austria's Red Bull GmbH and Rockstar Inc., both private companies. PepsiCo (PEP) also competes in the market with its AMP product, as does Coca-Cola (KO), which markets its Full Throttle energy drink through its Fuze Beverage subsidiary. Another well-known name in the beverage business, Dr. Pepper Snapple Group (DPS), has steered clear of the caffeine-heavy, carbonated offerings up to now.


Monster shares seem to be the victim of a double-whammy. Besides the lawsuit, the company clocked in with third-quarter profit that was below analyst estimates on a revenue gain that was the slowest since the fourth quarter of 2010. The company is also having some problems executing its overseas strategy, which is maybe the reason competitor Red Bull seems to be gaining market share outside the United States, according to Citigroup's Wendy Nicholson.


While lowering her price target on Monster from $60 to $50 a share, Nicholson added that the company's prospects for being acquired have also diminished. Goldman Sachs has a somewhat more optimistic view, even though Monster was removed from its Conviction Buy List. Goldman has a "buy" on the shares, and thinks Monster's issues are already reflected in its current share price.

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