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Actionable news in MNST: Monster Beverage Corporation,

Why Hasn't Coca-Cola Bought Monster Yet?

Summary

Coke squandered a golden opportunity to buy Monster at a cheaper valuation.

Monster has become a bigger player in a rapidly growing energy drink market.

Coke still has the opportunity to acquire Monster, and should.

Coca-Cola (NYSE:KO) has basically traded sideways for the last 3 years. It has traded in a tight range from around $38/s to $42/s. Coke announced results recently, meeting revenue estimates, slightly beating EPS, and disappointing on organic volume and price/mix. Better-than-expected operating margin and higher equity income contributed to the small EPS upside: $0.45. Support should emerge for Coke's increased relative multiple, deriving from reduced capital intensity and continued market speculation that Coke is under-earning, either because of the benefits of refranchising or takeout or both.

There looks to be organic revenue growth of 4-5%, comparable, currency neutral EPS growth of 4-6%, including 3 to 4 points of structural headwind. Unchanged versus prior view. Coke will also look to repurchase 2-2.5B shares.

While they have continued to perform relatively well as a consumer staple, returning shareholder capital through buybacks and dividend increases, the limited growth is unappealing to many. Investors looking for consumer staples have often chosen PepsiCo (NYSE:PEP) over Coca-Cola, as they feel it is a much more diversified brand with a very good management team and a growing international presence.

Just over two years ago Coke announced it would buy a stake in Keurig Green Mountain Coffee (formerly traded under the ticker [GMCR] before being taken private) and a 16.7% stake in Monster Beverage (NASDAQ:MNST) for $2.15B. This question has been asked before by the WSJ.

John Faucher, a beverage analyst at JPMorgan (NYSE:JPM), said he would have...


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