NEW DIRECTIONAL CALL PLAYS
Monster Beverage - MNST - close: 140.44 change: +2.45
Stop Loss: 136.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.0 million
Entry on March -- at $---.--
Listed on March 30, 2015
Time Frame: Exit prior to earnings in May
New Positions: Yes, see below
Why We Like It:
A recent report by Beverage Digest noted that the sale of carbonated beverages (a.k.a. sodas) has fallen for the tenth year in a row. Consumer spending on traditional soft drinks has plunged to the lowest pace since 1986. One area of the beverage market that is bucking this trend is energy drinks and alternative drinks. Euromonitor said that the energy drink market has soared from $3.8 billion in 1999 to $27.5 billion in 2014. The divergence between traditional sodas and energy drinks is significant. Beverage Marketing Corp. said the sale of energy drinks in the U.S. rose +6.3% in the first six months of 2014 while normal drink sales declined -1%.
One company benefiting from this divergence is MNST. If you're not familiar with the company here's a brief description: "Based in Corona, California, Monster Beverage Corporation is a holding company and conducts no operating business except through its consolidated subsidiaries. The Company's subsidiaries market and distribute energy drinks and alternative beverages including Monster Energy(R) energy drinks, Monster Energy Extra Strength Nitrous Technology(R) energy drinks, Java Monster(R) non-carbonated coffee + energy drinks, M3(R) Monster Energy(R) Super Concentrate energy drinks, Monster Rehab(R) non-carbonated energy drinks with electrolytes, Muscle Monster(R) Energy Shakes, Ubermonster(R) energy drinks, and Peace Tea(R) iced teas, as well as Hansen's(R) natural sodas, apple juice and juice blends, multi-vitamin juices, Junior Juice(R) beverages, Blue Sky(R) beverages, Hubert's(R) Lemonades and PRE(R) Probiotic drinks."
The long-term up trend in MNST's stock accelerated last year. That's because back in August 2014 MNST announced a partnership deal with beverage titan Coca-Cola (KO). MNST's management commented on the deal in their latest earnings report. Here's an excerpt:
In August 2014, Monster Beverage and The Coca-Cola Company entered into definitive agreements for a long-term strategic partnership to accelerate growth for both companies in the global energy drink category. Under the agreements, The Coca-Cola Company will acquire an approximate 16.7 percent ownership interest in Monster (post issuance) and will transfer ownership of its worldwide energy business to Monster, which, in turn, will transfer its non-energy business to The Coca-Cola Company. Monster and The Coca-Cola Company will amend their current distribution coordination agreements to expand distribution with Coca-Cola bottlers into additional territories. Upon closing, The Coca-Cola Company will become Monster's preferred distribution partner globally, and Monster will become The Coca-Cola Company's exclusive energy play. The transaction, which is subject to customary closing conditions, is expected to close in the second quarter of 2015.
This deal with KO is a game changer and will significantly boost MNST's ability to enter international markets. There is a growing camp of speculation that believes KO may end up buying MNST outright to capture the leading player in the energy drink industry to offset declines in KO's traditional soda market.
Meanwhile MNST continues to deliver on the earnings front. The company averaged +42% earnings growth last year. MNST has the highest sales growth in the nonalcoholic beverage industry (+8% to +12%) versus the industry's -2%.
MNST's most recent report was their 2014 Q4 results on February 26th. Earnings soared +63% to $0.72 a share. Analysts were only expecting $0.58. Revenues were up +12% to $605.5 million, which was also above expectations. Their full-year 2014 gross margins improved from 52.2% to 54.4%. Wall Street is forecasting MNST to see earnings grow +21% in 2015.
The stock shot higher on its earnings report in February. Shares have been consolidating sideways the last five weeks. MNST held up pretty well during the market's recent decline. We think the stock could be forming a short-term bottom in the $134-141 range. The March 24th high was $141.28. Tonight we're suggesting a trigger to buy calls at $141.50.
Trigger @ $141.50
- Suggested Positions -
Buy the MAY $145 CALL (MNST150515C145) current ask $4.70
option price is a current quote and not a suggested entry price.
Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.
Option Format: symbol-year-month-day-call-strike