Monster Beverage Goes Through Growing Pains In Q3

Jefferies cut its estimates and price target on Monster Beverage Corporation (NASDAQ: MNST) following the company’s third quarter EPS miss due to many transitory factors.

Monster’s third quarter EPS of $0.99 missed Street estimate by $0.13 and revenues came in 3.7 percent below Street. Gross margin of 63.8 percent also missed Street 64.4 percent estimate.

However, the company’s encouraging October gross sales update should pacify investors concerns over topline. The brokerage noted that the update is even stronger than it appears as the 12.6 percent reported FX-neutral gross sales contemplate a period with one fewer selling day than year-ago.

“We est. a ~17% like-for-like gross sales increase (helped by Mutant sell-in), or ~14% in the US and ~25% in int'l, each of which should be viewed favorably by investors,” analyst Kevin Grundy wrote in a note.

Among other positives, the company expects continued growth in energy drink segment and would benefit from "soft launch" in China.

That said, Grundy cut his FY16-18 EPS est. by about 4 percent, to reflect the quarterly miss and higher levels of investment.

The analyst now expects FY 2016/FY 2017 EPS at $3.74/$4.62 versus prior estimate of $3.93/$4.82.

“We remain favorably predisposed to MNST, though remain on the sidelines following a choppy 3Q, given the stock's premium multiple at 32x EV/ULFCF (vs. 21.5x staples avg),” Grundy added.

Grundy maintained his Hold rating, but cut the price target by $15 to $160.