Slower near-term and long-term outlook prompts Piper Sandler to downgrade Monster stock

Piper Sandler analysts downgraded shares of Monster Beverage (NASDAQ:) to Neutral from Overweight with a price target cut by $13 to $50 per share.

The analysts say Monster’s gains are slowing while sales declines continue to accelerate.

“Our Fall 2023 teen survey also suggests long-term share pressure, as Monster under-indexes with teens,” the analysts wrote in a downgrade note.

Monster Beverage is experiencing a broad deceleration in its portfolio’s retail sales growth in the United States, excluding Bang Energy. In the latest four weeks ending on October 8, MNST’s US measured retail sales (excluding Bang) increased by +5.8%, showing a slowdown from the +8.9% growth observed in the previous four weeks, according to Piper’s analysis.

Sales of Monster Energy, one of the company’s key products, grew by +3.7% in the most recent four weeks, which is a notable decrease from the +14.8% growth recorded in the four weeks prior, based on data from SPINS/IRI.

On the other hand, MNST’s alcohol brands experienced 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, based on SPINS/IRI data.

As a result, the analysts lowered 2023 and 2024 EPS estimates, hence the lower price target.

“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.”

“Current slower momentum in US scanner data, coupled with longer-term risks from teens adopting the brand at a slower rate than has been true in the past make us more cautious, though we do continue to recognize the strength of its balance sheet.”

Monster shares are down more than 1% in early Tuesday trade.