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Could Monster Beverage Reach $195 By 2016?

Summary

Monster's earnings are likely to grow at a CAGR of 21% over the next five years.

Though Monster is trading at a forward PE of 37.7x, comparatively low PEG ratio of 2.36x fully justifies the price.

Asia Pacific energy drinks market is expected to grow at a CAGR of 4.5% over the next five years.

The share price of Monster Beverage (NASDAQ:MNST) is on a consistent rise since the strategic partnership with The Coca-Cola Company (NYSE:KO), which owns 16.7% stake in Monster. Now Monster is benefiting from Coca-Cola's strong distribution network. That being said, Monster has provided solid returns over the past one year. With more than 36% total return, Monster outperformed its peers and S&P 500 Index. Resultantly, Monster's relative valuation multiples are higher than its peers and industry average.

Monster trades at a relatively higher valuation because it successfully delivered earnings growth historically and its future earnings are expected to grow even at a higher rate. Monster's earnings are likely to grow at a CAGR of 21% over the next five years as compared to historical five years average of 19%. The strategic partnership with Coca-Cola and growth potential in the energy market are the long-term growth drivers. Moreover, McDonald's (NYSE:MCD) selling energy drinks in its restaurants could generate additional revenue for Monster. Though Monster is trading at a forward PE of 37.7x, comparatively low PEG ratio of 2.36x fully justifies the price.

A Very Strong Rebound In Performance

After missing the first two quarters of 2015, Monster managed to beat the...


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