Monster Beverage Corporation

MNST Details

Monster Beverage Corporation (NASDAQ: MNST) is a holding company and it operates through its consolidated subsidiaries. Its subsidiaries are engaged in developing and marketing of energy drinks.

H1FY21 Results Performance (For the Period Ended 30 June 2021)

Rise in Revenue by 25.5% YoY: Despite the prevailing effect of the COVID-19 pandemic, the company achieved record net sales in Q2FY21 that rose 33.6% to $1.46 billion. Further, the company has recorded 25.5% YoY growth in revenue in H1FY21 to $2.71 billion driven by the benefit of changes in foreign currency exchange rates that had a favourable impact on net sales of $47.9 million during the period.

Net Income Rose to $719.0 million: Although, gross profit as a percentage of net sales reduced to 57.4% from 60.1% in the comparable period last year, net income during H1FY21 increased by 21.8% YoY to $719.0 million, from $590.2 million in the PCP. During Q2FY21, net income grew by 29.7% to $403.8 million.

Key Data (Source: Company Reports)

Outlook

The company has delivered a record financial result in Q2FY21, despite the impact of the COVID-19 pandemic and particularly of the Delta variant. The energy drink category, and specifically its Monster Energy® brand, continues to showcase continued growth in most of its markets. The company continues to enhance its distribution channel both in domestic as well as international markets for its products.

MNST continues to focus on new launches and is further planning for additional launches during H2FY21.

It has secured aluminum cans over and above its contracted volumes from the United States, South America, and Asia to fulfill their increased demand.  It expects deliveries to increase sequentially during the latter half of the year. However, the company expects that the shortage of shipping containers and global port congestion would result in a delay in the arrival of imported cans. Besides, it has entered into supply agreements with two new aluminum can suppliers in the United States and is likely to be operational in Q4FY21.

The company has a decent liquidity position with cash and cash equivalents of $1.58 billion and short-term investments of $969.0 million, and $91.0 million in long-term investments as of June 30, 2021.

Key Risks

The company highlighted that it is witnessing cost pressure and it will continue to experience increased input costs including, aluminum. Moreover, it is exposed to the risk of increased competition and changing retail landscape that may hurt its business. It is also susceptible to changes in consumer product and shopping preferences that would hurt demand for certain products.

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Stock Recommendation

We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price that reflects a fall of low double-digit (in % terms). We have applied a slight discount to EV/Sales Multiple (NTM) (Peer Average) considering its higher operating costs, expected delay in the arrival of imported cans due to the shortage of shipping containers, and global port congestion.

For the purposes of relative valuation, we have taken peers like Brown-Forman Corp (BFb.N), Keurig Dr Pepper Inc (KDP.OQ), among others.

Considering the aforementioned factors and the associated business risks, we advise the investors to liquidate the stock.

We give a “Sell” rating on the stock at the current market price of $98.47 per share, up by 1.55% on 9^th August 2021.

Daily Price Chart

Source: REFINITIV, Note: The Purple Color Line Reflects RSI (14-Period)

Mondelez International, Inc.

MDLZ Details

Mondelez International, Inc. (NASDAQ: MDLZ) is one of the world’s largest snack companies. The company makes and sells snacks, like biscuits, chocolate, gum & candy, and various cheese & grocery and powdered beverage products.

Result Performance – For the Second Quarter Ended 30 June 2021

• Rise in Revenue: Net revenues stood at $6,642 million, up 12.4% YoY led by the Organic Net Revenue growth of 6.2%, favorable currency, and sales from the acquisition of Hu, Grenade, and Gourmet Food. Volume and pricing drove organic net revenue growth, partially offset by unfavorable mix.
• Operating income stood at $872 million, up 22.3% YoY and operating income margin was 13.1%, up 100 basis points. Adjusted Operating Income increased $68 million at constant currency
• Diluted EPS stood at $0.76, up 100.0%, mainly led by lapping prior-year costs associated with the JDE Peet's transaction and a higher gain in Q2FY21 on equity method investment transactions, among other factors. Adjusted EPS stood at $0.66, up 1.6% on a constant-currency basis.

Key Data (Source: Company Reports) 

Risks

Global or regional pandemics or epidemics like COVID-19 could impact business operations, financial performance, and results of operations. Further, the company is exposed to a highly competitive industry, protection of reputation and brand image, predict consumer preferences and demand and offer new and innovative products.

Outlook:

For FY21, the company is expecting organic net revenue growth of over 4%, Adjusted EPS Growth (at cst FX) of High single-digit, and Free Cash Flow of over $3 billion. Further, the company estimates currency translation would rise 2021 net revenue growth by ~2% with a positive $0.09 impact on Adjusted EPS. The company’s strategy and long-term algorithm remain unchanged.

Valuation Methodology: Price/Cash Flow Based Relative Valuation (Illustrative)

Stock Recommendation:

The stock has made a 52-week low and high of $52.51 and $65.60, respectively. We have valued the stock using a Price/Cash Flow (P/CF) multiple-based illustrative relative valuation and have arrived at a target price which reflects a decline of low double-digit (in % terms). We have applied a slight discount to P/CF Multiple (NTM) (Peer Average) considering a lower Current ratio at 0.61x in Q2FY21 versus Industry Median of 1.85x and Higher Debt to Equity ratio at 0.69x in Q2FY21 vs Industry Median of 0.51x.

Considering the aforesaid facts and current trading levels, we suggest investors to liquidate the stock.

Hence, we give a “Sell” rating on the stock at the current price of $62.02 per share, up 0.4% on 9^th August 2021.

Daily Price Chart

Source: REFINITIV, Note: The Purple Color Line Reflects RSI (14-Period)

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Disclaimer

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