Q1'17 Earnings Preview
Monster Beverage Corp (NASDAQ: MNST) is expected to report Q1'17 earnings on Thursday after the market closes.
Over the prior eight quarters, the company's financial performance and stock price has fluctuated considerably.
For example, the company reported revenue growth of 4.1% (vs. 8.1% expected) for Q3'16 on November 3rd and the stock fell 14%.
Then the following quarter, Monster announced that sales increased 18.8% (vs. 11.9% expected) and shares jumped nearly 13% as
highlighted below.
![screen_shot_2017-05-02_at_3.14.07_pm.png](https://www.benzinga.com/files/u105576/screen_shot_2017-05-02_at_3.14.07_pm.png)
So what should investors expect for Q1'17?
Although the energy drink distributor has beaten its revenue estimates five out of the last eight quarters, year-over-year
revenue growth has ranged anywhere from 0.9% to 19.3%. As a result, the stock has traded at a low of $36.00 per share and a high
$54.00 per share over the same period. Overall, the market seems to be trying to figure out if this is still the high growth
company that investors have witnessed over the last decade.
However, industry headwinds, poor peer group performance and product delays point to a troubling quarter ahead.
Industry Headwinds & Overvalued Peers
CNBC reported on April 19th that
U.S. soda sales (including energy drinks) dropped for the 12th consecutive year in the face of consumers choosing healthier options
and a slew of sugar taxes. While a declining soft drink market and new tax levies have not directly disrupted Monster's ability to
grow its top line in recent years, it is a long-term negative that will surely impact the company down the road.
In addition, comparable companies in the beverage industry appear to be struggling as seen from their recent Q1'17 earnings.
Dr. Pepper Snapple (NYSE: DPS) shares have dropped nearly 6% since the company announced that it missed its
revenue estimate by $40 million on
April 26th. On the same day, Pepsi (NYSE: PEP) reported that its top line beat estimates by $70 million and the stock has since fallen almost
2%.
Coca-Cola (NYSE: KO) also
beat its revenue expectations by $240
million but total sales actually fell 11%, its eighth consecutive quarterly decline. The stock has generally remained flat
since its earnings announcement.
Dr. Pepper Snapple missed its revenue estimate and the stock has fallen 6%. Pepsi beat its estimate and shares still dropped 2%.
Coca-Cola crushed its estimate and the stock has remained flat implying that these beverage companies had stretched valuations
going into earnings.
The chart below compares each company's forward EBITDA multiple and
projected five-year EBITDA CAGR to Monster's.
View chart source.
Monster is expected to grow at a faster rate over the next five years compared to the selected peer group but not materially
higher. Wall Street expects Dr. Pepper and Pepsi to grow their EBITDA at over 7.0% annually compared to Monster's 10.0%. However,
Monster's 18.4x forward EBITDA multiple is significantly higher than Dr. Pepper's (11.6x) and Pepsi's (13.7x).
Furthermore, shares of Monster appear 25% overvalued when applying Wall Street estimates to nine separate finbox.io cash flow
analyses as shown below.
View all 7 valuation models that derive MNST's fair value estimate.
So what should investors expect when Monster reports on Thursday?
Concluding Remarks: Little Upside Before Earnings
Wall Street analysts expect revenues to reach $740 million (8.8% growth) in Q1'17 which is a reachable figure based on the
company's historical performance. However, investors should not expect big upside potential based on the recent earnings
performance of industry peers.
In addition, the company's recent Hydro shortage has caused a delay in the
launch of the new replenishing drink by potentially 90 days. Expect an update from management on Thursday and whether it is
expected to have any impact on the company's performance for the remainder of the year. Any cut in full year guidance will likely
weigh heavily on shares.
Overall, Monster's stock appears overvalued on a relative and long-term cash flow basis. Value investors may want to stay away
prior to Thursday's earnings announcement.
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