Monster (MNST) Margin Expansion is Sustainable, Cowen Says; PT Up to $168

Vivien Azer, from Cowen, published and earnings review on Monster Beverage (NASDAQ: MNST) highlighting the margin expansion opportunities available through KO.

MNST's new concentrate business, which reflects the newly acquired KO brands, generated $45 mm in profit in the quarter, with an EBIT margin of nearly 65%. While that level of profitability will be hard to sustain, the accretion from the KO deal is a nice driver of incremental profit.

In exchange for acquiring KO's high margin concentrate business, MNST sold to KO, its low-margin non-energy drink business, which in the first 9 months of 2014 generated a 6% EBIT margin. Azer, estimates that the absence of this business offers a roughly 150 bps lift to margins.

By consolidating its business into the KO network in the U.S., as well as increasingly abroad, MNST's distribution costs have dropped significantly. Since 2Q15, distribution costs as a percentage of sales fell from 4.4% to 3.5%. Now, margins for MNST's own brands have improved 330 bps, to 42.2%.

No change to Outperform rating, PT increases to $168 from $167.

For an analyst ratings summary and ratings history on Monster Beverage click here. For more ratings news on Monster Beverage click here.

Shares of Monster Beverage closed at $150.24 yesterday.

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