The beverage industry is expanding, driven by shifting consumer preferences toward premium and innovative beverages, rising disposable incomes, and the growing popularity of functional beverages, such as energy drinks and plant-based alternatives. According to Statista, global beverage revenue is expected to reach $380.40 billion by 2029, expanding at a compound annual growth rate of 10%.
When it comes to beverage stocks, Coca-Cola (KO) and PepsiCo (PEP) steal the spotlight. But beyond these giants, two other beverage growth stocks, Monster Beverage (MNST) and Celsius Holdings (CELH), are making waves in the burgeoning industry.
Growth stocks like MNST and CELH are often seen as long-term investments, since their growth potential might materialize with time. But which growth stock is a better pick right now? Let's find out.
The Case for Monster Beverage Stock
Boasting a market cap of $55.6 billion, Corona, Calif.-headquartered Monster Beverage Corporation (MNST) is a dominant force in the rapidly expanding energy drink sector. Alongside energy drinks, it offers ready-to-drink iced teas, lemonades, juice cocktails, single-serve juices, fruit beverages, ready-to-drink dairy and coffee drinks, sports drinks, and single-serve still waters, to name a few.
Shares of Monster Beverage have declined 7.4% on a YTD basis, substantially underperforming the broader S&P 500 Index’s ($SPX) gains of 5.4% during the same time frame.
Priced at 29.40 times forward earnings and 7.78 times sales, Monster Beverage is currently trading at a discount to its five-year average multiples of 34.43x and 8.89x, respectively. Even though analysts expect EPS growth of 16.8% over the next 3-5 years, this valuation is expensive, as evident from the 2.17x price/earnings-to-growth (PEG) ratio, which is higher than the beverage industry median.
Monster Beverage Q4 Earnings Disappoint
Monster Beverage reported Q4 revenue of $1.7 billion on Feb. 28, which rose 14.4% annually, but fell short of analysts’ estimates, as budget-conscious consumers turned wary of purchasing the company's high-priced beverages and energy drinks. Its net income rose to $367 million, or $0.35 per share, which also missed the Wall Street estimates.
According to Nielsen reports, for the 13 weeks through Feb. 17, for all outlets combined in the U.S., sales in dollars in the energy drink segment increased by 5.5% compared to the same period a year ago.
While the competition in the beverage market intensifies, Monster Beverage stays cool by focusing on product innovation to woo its target audience. Its global expansion is the secret sauce, with over half of the energy drink market beyond the U.S. borders driving growth.
The company is expected to report its first-quarter earnings results this Thursday, May 2, after the market close, with the consensus looking for a profit of $0.44 per share tomorrow. Analysts tracking Monster Beverage expect its fiscal 2024 EPS to reach $1.80, up 16.1% year over year, and increase another 13.3% in fiscal 2025 to $2.04.
Monster Beverage stock has a consensus “Moderate Buy” rating in the analyst community. Out of the 21 analysts covering the stock, 12 have a “Strong Buy” recommendation, one has a “Moderate Buy,” seven advise a “Hold,” and the remaining one suggests a “Strong Sell.”
In a research note on April 25, Truist Securities analyst Bill Chappell downgraded Monster Beverage by two notches from a “Buy” to a “Sell” rating, noting that the energy drink maker is no longer seen as a high-growth business. The analyst also reduced his price target on the stock to $46 a share from $65.
However, the average analyst price target of $63.30 indicates an 18% upside potential from the current price level. The Street-high price target of $69 suggests a potential upside of 28.7%.
The Case for Celsius Holdings Stock
Valued at approximately $16.5 billion, Boca Raton-based beverage company Celsius Holdings, Inc. (CELH) develops and sells functional energy drinks and liquid supplements worldwide. Its products include CELSIUS fitness drinks, energy drinks in various flavors, and ready-to-drink products distributed through various channels, including supermarkets, convenience stores, and e-commerce websites.
Unlike Monster Beverage, shares of Celsius Holdings have outperformed the broader market, returning 31.7% on a YTD basis, despite its 13.6% dip in April.
Priced at 65.68 times forward earnings and 12.92 times sales, Celsius Holding is currently trading at a premium to its peer Monster Beverage. Even though analysts expect EPS growth of 40.9% over the next 3-5 years, this valuation is expensive, as evident from the 2.09x price/earnings-to-growth (PEG) ratio. But considering its solid growth prospects, entering the stock at this valuation could be rewarding.
Celsius Holdings Beats Q4 Earnings Projections
On Feb. 29, the company reported Q4 revenue of $347.4 million, up 95% year over year, beating Wall Street’s estimates by 4.8%. Its net earnings of $0.17 per share rose 242%, surpassing analyst projections by 6.3%. This was driven by expanded availability of its products and increased consumer awareness. The company's Chairman and CEO said, "We continued to drive growth of the category by bringing in new loyal consumers, as well as increasing consumption occasions."
In March, Celsius spread its wings into Australia and New Zealand. Then, on April 4, it made waves by expanding into France through Suntory Beverage & Food France. This builds on its January announcement of a distribution deal with Suntory for the United Kingdom and Ireland.
Analysts tracking Celsius Holdings expect its fiscal 2024 EPS to surge 41.6% annually to $1.09 and grow another 40.4% to $1.53 in fiscal 2025. The company is expected to announce fiscal Q1 2024 earnings results on Tuesday, May 7, before markets open.
Celsius Holdings stock has a consensus “Strong Buy” rating. Out of the 14 analysts covering the stock, 12 have a “Strong Buy” recommendation, and the remaining two have a "Hold” rating.
The average analyst price target of $97.31 indicates a 35.5% upside potential from the current price level. However, the Street-high price target of $110 suggests a 53.2% upside potential.
MNST vs. CELH: Which Stock is the Better Buy?
Wall Street analysts are bullish on both stocks, giving them consensus buy ratings and optimistic price targets. But Celsius Holdings might edge out Monster Beverage, despite its nose-bleeding valuations, thanks to its consistent profitability, longer-term outperformance, robust revenue growth, and more upside potential to consensus price targets.
In any case, potential investors may prefer to bide their time until after their imminent earnings releases to consider picking up shares, with many companies selling off even in the wake of relatively solid results this quarter.
On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
