Piper Sandler analysts have downgraded the shares of Monster Beverage (NASDAQ: MNST) from Overweight to Neutral, concurrently reducing the price target by $13 to $50 per share. The primary reason behind this decision is the perceived deceleration in both the near-term and long-term growth prospects of Monster Beverage.
The analysts underscored that Monster’s recent gains have been slowing, while sales declines are exhibiting an accelerating trend. In a note accompanying the downgrade, they emphasized, “Our Fall 2023 teen survey also suggests long-term share pressure, as Monster under-indexes with teens.”
Monster Beverage is witnessing a broad deceleration in the retail sales growth of its portfolio in the United States, excluding Bang Energy. According to Piper’s analysis, in the latest four weeks ending on October 8, the measured retail sales of MNST in the U.S. (excluding Bang) increased by +5.8%. This reflects a slowdown from the +8.9% growth observed in the preceding four weeks.
The sales of one of Monster Beverage’s key products, Monster Energy, saw an increase of +3.7% in the most recent four weeks. This marks a significant decline from the +14.8% growth recorded in the four weeks prior, based on data from SPINS/IRI.
Conversely, the company’s alcohol brands registered a decline in sales, falling by -10.8% in the latest four weeks compared to a -8.2% decline in the previous four weeks. Strategic sales, which are a part of the company’s portfolio, grew by +9.5% in the most recent four weeks, down from +12.9% in the four weeks prior, as per SPINS/IRI data.
As a consequence of these trends, Piper Sandler has revised its earnings per share (EPS) estimates for 2023 and 2024, which in turn led to a reduced price target. The analysts explained their decision, stating, “We are lowering our target P/E from ~33x to ~28x (still highest in our large-cap coverage), as MNST’s near-term and long-term growth momentum look likely to lag historical levels. Our forecasted EPS and organic revenue growth lag well behind its usual pace.”
Furthermore, the current sluggish momentum in U.S. scanner data, coupled with the longer-term risks stemming from teenagers adopting the brand at a slower rate than previously observed, have made the analysts more cautious. They did, however, acknowledge the strength of Monster Beverage’s balance sheet.
In response to this downgrade, Monster Beverage shares experienced a decline of more than 1% during early Tuesday trading.