Shares of energy drink producer Monster Beverage Corporation (NASDAQ: MNST)
were on the verge of breaking out of a two-year price range peaking at $70.45 on Feb. 20th
before COVID-19 infected the financial markets. Shares collapsed (-29%) slightly outperforming the S&P 500 (NYSEARCA: SPY)
decline of (-35%) as systemic risk took front stage amid the coronavirus black swan event. As a consumer staple product, MNST shares may have been overly punished which subsequently can present opportunistic entry levels for prudent investors and agile traders.
Monster Q4 2019 Earnings Highlights
On Feb. 27, 2020, MNST reported in-line Q4 2019 earnings of $0.47-per share on revenues of $1.02 billion representing 10.1% year-over-year (YoY) growth. Average net sales per case rose to $9.55 vs. $9.43 YoY with overall case sales up 8.8% YoY. MNST is the number two energy drink maker behind Red Bull with an increase of market share to 9.3% from 7.5% YoY. MNST grew market share to 52% of the energy drink market in South Korea. The company did warn that adverse effects of the coronavirus could arise in the supply chain with suspension or closure of third-party manufacturers. They noted how their co-packing facilities in China and ingredient sourcing could delay the production of certain products.
The launch of the Reign brand has proven to be a solid growth driver with 3.7% growth in its brand of energy drinks and Reign Total Body Fuel high-performance drinks in the 13-week period ending Dec. 29, 2019. The company launched plant-based coffee products containing Oatmilk with Java Monster Farmers Oats and various Reign products including Reign Ultra Paradise, Reign Strawberry Sublime, Reign Orange Creamsicle, Reign Melon Mania and Reign Razzle Berry. MNST plans to launch Predator throughout 2020 globally. During the four-weeks ended Jan. 5, 2020, Neilson noted a 5.7% increase in energy drink sales in convenience and gas station channels. Reign grew at 4.1% second to Red Bull up 5.9%.
The Pepsi Challenge
On March 10, 2020, PepsiCo (NYSE: PEP) announced the acquisition of Rockstar Energy Beverages for $3.85 billion. Rockstar had originally switch distributors from Coca-Cola to PepsiCo. This acquisition makes challenges the Coca-Cola Company (NYSE: KO) in the energy drink space. Coca-Cola owns 16.7% of MNST which was purchased for $2.15 billion in 2015. MNST becomes an attractive acquisition target for the big beverage companies looking to make a larger footprint in the high margin energy drink industry. Pepsi’s acquisition also saddles more debt that potential could trigger a “negative” ratings watch from Moody’s. Pepsi’s move may spark Coca-Cola to take defensive measures and counter the Rockstar acquisition with Monster Energy, which has very little debt at just $29 million. Whether it’s KO or another player, the acquisition of Rockstar thrusts MNST into the spotlight as an even more attractive buyout candidate.
Opportunistic Buy Levels
MNST most recent price range is contained within two-year price range between $70.45 highs and $47.97 Fibonacci (fib) level lows. Using the rifle charts on wider time frames to lay out the playing field suitable for swing traders and investors. The weekly stochastic is making a full oscillation down with a mini inverse pup on the rejection of the 5-period moving average (MA) at $58.28. The weekly lower Bollinger Bands (BBs) is at $50.06. The daily chart triggered a market structure low (MSL) trigger above $54.47 as the stochastic formed a mini pup coil through the 20-band. The April 1st gap down can trigger the daily stochastic cross down to form an inverse pup breakdown to the weekly lower BBs. Rather than chasing entries, patience is warranted to wait for opportunistic entry levels based on the weekly mini inverse pup playing out. In this scenario, these entry levels are $50.06 weekly lower BBs, $47.97 fib and $45.77 fib/daily lower BBs. Traders should consider wiggle room of up to $0.75 and long-term holders should consider implementing a pyramid scaling allocation model for opportunistic average pricing. Managing share sizing if of the utmost priority and scaling into the entries is key. For options traders, selling naked puts with the hope and intent to get shares assigned could also explore that strategy.
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