Goldman Thinks Monster Beverage Has 23% Upside

• Monster Beverage Corporation MNST shares have appreciated 6 percent year-to-date, hitting a peak of $155 on August 3.
• Goldman Sachs’ Judy E. Hong upgraded the rating on the company from Neutral to Buy, with a price target of $165.
• The company’s entry into the high potential Chinese market and an outsized cash return are two catalysts that could boost the stock valuation, Hong said.

Analyst Judy Hong mentioned that Monster Beverage’s shares have declined 13 percent since the beginning of August, as compared to an 8 percent decline in the S&P500. The underperformance is attributable to distributor transition issues and uncertainty around the timing of the cash return.

Monster Beverage’s current stock valuation offers a “better entry point” ahead of two “underappreciated catalysts,” namely the company’s entry into the Chinese market and an outsized cash return, Hong mentioned.

Monster Beverage’s entry into the Chinese market is expected to boost the company’s international sales growth and add to its earnings. The Goldman Sachs report added that the company has excess cash following the close of the deal with The Coca-Cola Co KO and is likely to return the same to shareholders in due course.

The EPS estimate for FY15 has been reduced from $3.20 to $3.15 to reflect lower buyback assumption. The EPS estimates for FY16 and FY17 have been raised from $4.05 to $4.20 and from $4.84 to $4.95, respectively, to reflect the $5 billion Dutch tender expected in early 2016.