The Future Of NikeJun 12, 2021
Current Price: $93.50
Price Target: $114
Target Date: 6-8 Months
Today we're initiating new coverage on Monster Energy! Monster Energy is an energy drink company that has a 39% share of the energy drink market. While domestically Monster has a very large presence, internationally we see a massive opportunity for sales growth as they're gaining momentum based off of the most recent data to come out of Europe and Asia. This stock pick today is a relatively low risk play with decent upside as part of the choppy markets we see now. The beverage industry, in general, has seen strong growth over the last year and we like this play as part of the overall play into this sector!
While sales growth is picking up internationally, we want to first denote how impressive this is. Given how large Monster is (they own 39% of the $59B energy drink market), growth is something that is not easy for a company of this size as they've saturated most of the market. The biggest opportunity they see and are starting to claim is in Europe and Asia. They is because their share internationally is "only" at 11% whereas their share in the US is closer to 42%. Comparing that to RedBull internationally we see them in the low 30's% so they're looking to encroach on their turf while defending their home ground.
Within this growth vector, we are forecasting Monster to have YoY international growth of close to 20% which will drive close to 60% of the entire growth we are forecasting for them (close to 13%). With US based growth in the single digits, we think double digit growth in Europe can and will be sustainable for Monster. We want to make two comments on this:
- This is crazy for a company of their size. While we've said this above, 20% YoY growth for a company with 39% market share is unheard of. Think about it like this, young companies are able to grow fast because the market opportunity is so large and they have so little captured. Conversely with stocks like Monster where they own such a large portion of the market, capturing even 1% more means massive sales numbers from even less vendors not buying and using their products. This becomes incredibly hard at scale and the fact that Monster is doing it is highly encouraging. This is not normal behavior and therefore we look at this is an extremely positive signal for Monster.
- This is still conservative as international scale ramps up. Looking at their recent growth of over 15%, our estimates of 20% are driven from management's comments as well as success we've seen from comparable programs in Europe. We think, if Monster does well, that this number can be far outpaced, thereby driving our price target even higher. As Monster releases more sales numbers we will update our forecasts to account for any changes. But in the interim we are choosing to be conservative to derive our baseline price target.
While Monster's stock has been relatively flat this year, we see this international expansion leading the charge for their growth going forward. Once this becomes realized, we believe the stock could react favorable as investors pick up the same understanding. Therefore we believe this opportunity is undiscovered and a good time to get in now! Looking at projected valuations compared to the stock today we think it is undervalued and assign it a price target of $114 (20%+ upside from its current price) based off our DCF models. While Monster is a household name, we think this is a good diversified opportunity in other sectors that people commonly do not have exposure too!