E Monster Energy: Has It Lost Its Roar?

Income metrics

Factoring in what we saw on the top line as well as operational expenses, Operating income for the 2017 fourth quarter increased to $267.1 million from $251.7 million in the comparable quarter last year. When we consider selling and administrative expenses as well as an effective tax rate for the 2017 of 24.8 percent, we saw a nice boost in net income.

Net income increased 16.4 percent to $201.3 million from $172.9 million in the comparable quarter last year.  Net income per diluted share for the 2017 fourth quarter increased 17.5 percent to $0.35 from $0.30 in the fourth quarter of 2016. 

Our take

The strategic alignment with Coca-Cola system bottlers continues to progress and we feel this will be a benefit to improving distribution costs. While the domestic market is rather saturated with energy drink choices, we are pleased to see that in Q4 the company launched operations in a number of smaller countries with Coca-Cola system bottlers, and is currently planning for further launches or transitions in 2018, including in Argentina, Armenia, Belarus, and Tanzania. To address growth in the domestic market, the company will soon be launching Caffé Monster, an energy coffee, as Muscle Monster, an energy protein drink.

We believe that in 2018, we will see high single-digit growth in the top line. Assuming a comparable rate of expense growth, in addition to a lower effective tax rate, we see net income rising 15-18% in 2018. Given the current share price, Monster Beverage is attractively valued for entry into the stock. We are bullish.

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