Energy drink maker Monster Beverage (NASDAQ: MNST)
shares have been trading at 52-week highs and outpacing the benchmark S&P 500 index (NYSEARCA: SPY)
. While not originally expected to be a pandemic benefactor, the upsurge in sales
as isolation mandates are pulled has enabled shares to rally in anticipation of a sharp spike in foot traffic to distribution channels like grocery and convenience stores and gas station. The bar is set high into for its Q2 2020 earnings release, but investors should be ready to play opportunistic pullbacks even on gaps as multiple expansion is in the cards.
Q1 2020 Earnings Release
On May 7, 2020, Monster released its first-quarter fiscal 2020 results for the quarter ending March 2020. The Company reported earnings of $0.52 per share versus consensus analyst estimates of $0.48 per share, a $0.04 per share beat. Revenues came in at $1.06 billion beating analyst estimates of $1 billion up 12% year-over-year (YoY). The effects of COVID-19 struck in the latter part of March into April 2020 as isolation mandates were enacted across all geographies. This caused steep slowdowns with walk-in distribution channels including gas stations and convenience stores, which are the largest distribution channels. The mass merchandisers and grocery store channels remained stable as consumer consumption preferences naturally shifted to at-home rather than immediate. The Company has not seen any supply chain shortage or interruptions in raw materials or finished products.
Elevated Shares on Low Bar
While shares continue to hover at 52-week highs, analyst expectations may be set too low as the effects of COVID-19 may be overestimated. The at-home consumption segment may have more than offset the drop in the immediate consumption sales channels as the Company gains market share in the coffee energy drink segment, continued restocking upsurge of the original Monster energy drinks in grocery stores and expansion of its Reign brand. Frankly, these drinks are addictive, and consumption continues to accelerate from work-at-home workers to office workers coming back in the office. Monster drinks are also gaining market share on Red Bull as they are being stocked up in healthcare facilities.
Alcoholic Beverage Speculation
There has been speculation that Monster will be entering the alcoholic beverage market likely with a hard seltzer as per Stifel analyst Mark Astrachan. Leveraging the Monster brand adult customer base expand to alcoholic beverage energy drinks would be a logical next step for the Company. Mixing energy drinks with vodka (IE: Red Bull + vodka) is popular among Millennials and a hard seltzer rollout would be a solid step into parlaying and expanding its end-user base especially if partnering with a major beer brand like Anheuser Busch (NYSE: BUD) . However, it would make more sense to roll out after a COVID-19 vaccine is approved to appeal to the bar crowd which is why analysts are speculating 2021 as the probable start date.
Restarts and Rollbacks
Due to the cancellation of many sports events including NASCAR, sponsorship and endorsement costs like fell. The cost savings have been used to beef up social media marketing but may still result in a boost in margins. Investors can expect pent-up demand to bolster top line revenues as global restarts have been phased in and all U.S. stay-in-shelter mandates being lifted in Q2. The threat of rollbacks applies to bars and restaurants, which is not a threat to sales since Monster’s sales channels don’t include restaurant or bar settings.
MNST Price Trajectories
Using the rifle charts on the monthly and weekly time frames provides a broader view of the landscape for MNST stock. The monthly rifle chart has a powerful pup breakout combined with a stochastic mini pup which has already tested its upper Bollinger Bands (BBs) at $78.50. The monthly 5-period moving average (MA) support is rising at $67.56. The weekly rifle chart formed a market structure low (MSL) buy above $58.28. The double stochastic mini pups signal BB expansion with initial upside trajectory to the weekly upper BBs near the $85.14 Fibonacci (fib) level.Further upside sits at the $89.62, $97.65 and $100.65. Reaction to the Q2 2020 earnings sets up opportunistic pullback entry levels at the $74.86, $72.77 fib and $68.43 fib and monthly 5-period MA range. If MNST gaps up on earnings reaction, then the pullback on a gap up sits at the $81.58 fib. The pullbacks levels apply to both a sell-the-news reaction or the gap and multiple expansion reaction.
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