Shares of Monster Beverage Corp. (NASDAQ: MNST) stayed in negative territory during midday trade on Wednesday after Guggenheim downgraded the stock to Neutral from Buy. The stock was down 2.2%.
According to a report by CNBC, Guggenheim has predicted that the stock will be range bound for the next 6-9 months until the market can better understand the impact on Monster from Coca-Cola’s (NYSE: KO) energy drink launch in the US slated for January 2020. Although the long-term implications of the launch are mostly unknown in Europe, the firm sees some early softness for Monster in Great Britain and Germany.
On Tuesday, Coca-Cola announced that it was planning to roll out its first energy drink marketed under the Coca-Cola brand in the US in January 2020. The beverage was launched earlier this year in several countries across Europe.
In 2015, Coca-Cola and Monster entered into a strategic partnership under which Coca-Cola took a stake of around 16.7% in Monster. In July, the companies settled a dispute over the launch and sale of Coca-Cola Energy, allowing Coca-Cola to roll out its own energy drinks in global markets.
In its most recent quarter, Monster posted an 8.7% increase in net sales to $1.10 billion. Net sales in the Energy Drinks segment increased 9.6% to $1.02 billion. Net sales in the Strategic Brands segment, which includes the energy drink brands acquired from Coca-Cola, fell 0.8% to $79.1 million. Net sales to customers outside the US rose 16.8% to $343.3 million.
Based on data from Report Linker, the global energy drinks market size was valued at $53.01 billion in 2018, and is expected to grow at a CAGR of 7.20% to reach $86.01 billion by 2026.
Monster is likely to face significant competitive risks from Coca-Cola, as the latter has significant scale and resources that give it an edge.
Over the past three months, Monster’s stock has dropped 16%. The average price target is $66.57.