Food Processing Stocks

Monster Beverage Corp Valuation – February 2019 $MNST

Company Profile (excerpt from Reuters): Monster Beverage Corporation, incorporated on August 12, 2014, develops, markets, sells and distributes energy drink beverages, sodas and/or concentrates for energy drink beverages, primarily under various brand names, including Monster Energy, Monster Rehab, Monster Energy Extra Strength Nitrous Technology, Java Monster, Muscle Monster, Mega Monster Energy, Punch Monster, Juice Monster, Ubermonster, BU, Mutant Super Soda, Nalu, NOS, Burn, Mother, Ultra, Play and Power Play, Gladiator, Relentless, Samurai, BPM and Full Throttle. The Company has three segments: Monster Energy Drinks segment, which consists of its Monster Energy drinks, as well as Mutant Super Soda drinks; Strategic Brands segment, which includes various energy drink brands owned through The Coca-Cola Company (TCCC), and Other segment (Other), which includes the American Fruits & Flavors (AFF) third-party products.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of MNST – February 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $31,972,320,491 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.28 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 242.61% Pass
6. Moderate PEmg Ratio PEmg < 20 42.16 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 8.32 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 3.28 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $1.37
MG Growth Estimate 14.50%
MG Value $51.42
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $19.88
MG Value based on 0% Growth $11.66
Market Implied Growth Rate 16.83%
Current Price $57.82
% of Intrinsic Value 112.45%

Monster Beverage Corp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $0.7 in 2014 to an estimated $1.37 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 16.83% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Monster Beverage Corp revealed the company was trading above its Graham Number of $16.22. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 42.16, which was above the industry average of 26.71. Finally, the company was trading above its Net Current Asset Value (NCAV) of $2.1.

Monster Beverage Corp receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $2.10
Graham Number $16.22
PEmg 42.16
Current Ratio 3.28
PB Ratio 8.32
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $2,152,671,000
Total Current Liabilities $656,362,000
Long-Term Debt $0
Total Assets $4,871,359,000
Intangible Assets $2,373,891,000
Total Liabilities $978,092,000
Shares Outstanding (Diluted Average) 559,955,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.70
Dec2017 $1.42
Dec2016 $1.19
Dec2015 $0.95
Dec2014 $0.92
Dec2013 $0.65
Dec2012 $0.62
Dec2011 $0.51
Dec2010 $0.38
Dec2009 $0.37
Dec2008 $0.19
Dec2007 $0.25
Dec2006 $0.17
Dec2005 $0.11
Dec2004 $0.04
Dec2003 $0.01
Dec2002 $0.01
Dec2001 $0.01
Dec2000 $0.01
Dec1999 $0.01
Dec1998 $0.01

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.37
Dec2017 $1.15
Dec2016 $0.96
Dec2015 $0.81
Dec2014 $0.70
Dec2013 $0.56
Dec2012 $0.48
Dec2011 $0.39
Dec2010 $0.31
Dec2009 $0.25
Dec2008 $0.18
Dec2007 $0.16
Dec2006 $0.09
Dec2005 $0.05
Dec2004 $0.02
Dec2003 $0.01
Dec2002 $0.01

Recommended Reading:

Other ModernGraham posts about the company

Monster Beverage Corp Valuation – April 2018 $MNST
Monster Beverage Corp Valuation – July 2016 $MNST
Monster Beverage Corp Valuation – January 2016 Update $MNST
Monster Beverage Corporation Analysis – October 2015 Update $MNST
Monster Beverage Analysis – July 2015 Update $MNST

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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