Saturday, December 1, 2012

Monster Beverage Up 13% — More to Come?

Shares of Monster Beverage Corp. (MNST) closed up 13.3% Tuesday, by far the biggest move on the Standard & Poor’s 500 index (SPY), which ended down 0.5%.

Monster’s jump was attributed to a letter from the Food and Drug Administration to two U.S. senators. Observers interpreted the letter as a signal the FDA won’t take action against energy drinks any time soon.

As The Wall Street Journal reported:

The letter also noted there is no scientific literature calling into question the safety of taurine and guarana, two ingredients often used in such drinks with other ingredients including caffeine.

This is all good news for Monster, as today’s trading showed. And there could be more to come — after all, on the morning of Oct. 22 the stock opened at $53.46, only to plunge 14.5% after FDA incident reports linked the drink to five deaths. Even after Tuesday’s rise, Monster’s stock is just under $52, still below that Oct. 22 opening price and well below the all-time highs above $70 reached earlier this year. As the Journal’s story noted, Goldman Sachs analyst Judy Hong thinks the worst fears for the company — from regulators, at least — won’t come to pass.

We view [the] FDA’s response as encouraging and generally in line with our view that any regulatory outcome is likely to be benign…We continue to believe the most likely outcome will be increased disclosure and strengthening labeling, which is unlikely to have a material financial impact.

 

 

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