Monster Beverage Earnings: International Markets Contribute Bulk of Growth While US Demand Softens

Narrow-moat Monster Beverage hit a soft patch in the second quarter, increasing sales and earnings per share by 2.5% and 5%, respectively. This marks a deceleration from its double-digit-rate growth trajectory in the past five quarters, but we attribute the slowdown largely to consumer belt-tightening in the US (61% of total sales), in particular falling foot traffic at convenience stores, a key channel. As we expect the US macro backdrop to remain challenging for Monster and outweigh growth momentum internationally, we plan to trim our 2024 sales and EPS by a low-single-digit percentage. That said, we believe Monster’s steadfast investment in innovation and brand marketing, with its long-term distribution partnership with wide-moat Coke, should drive high-single-digit annual sales growth and low 30s operating margins over the next decade. We plan no material change to our $52 fair value estimate. Shares look undervalued after the low-double-digit slide in earnings.