Is Monster a fix for Coca-Cola's Diet Coke withdrawal?

Monster deal for Coke
Monster deal for Coke

The best defense is a good offense—at least, that may be true of Coca-Cola when it comes to energy drink maker Monster Beverage.

Typically considered one of the safest investments around, Coca-Cola has had a tough time recently. The stock has risen only 11 percent since the start of 2012, compared with a 26 percent gain for rival PepsiCo and a 47 percent gain in the .

A major headwind has been weakness in Coca-Cola's mainstay U.S. soda market, where consumers have shied away from diet drinks because of a spike in health concerns. Domestic unit volume of Diet Coke, the company's second biggest after its flagship Coca-Cola, fell 6.8 percent in 2013, according to industry newsletter Beverage Digest. When the company reports earnings next week, all eyes will be on that trend.

Read MoreDiet Coke may take the pop out of Coca-Cola shares

The bad news is that the U.S. business remains vulnerable to another hit. On top of its own products, Coca-Cola distributes roughly half of Monster Beverage's various drinks to retailers across the U.S., analysts say. The Monster relationship will generate an estimated 13 percent of Coca-Cola's North American operating profit and 3 percent on a global basis in 2015, according to Stifel Nicolaus analyst Mark Swartzberg.

David Paul Morris | Bloomberg | Getty Images

That income could vanish quickly if Monster were sold to a strategic buyer that decided to take away Coca-Cola's piece of the Monster distribution. Take Anheuser Busch InBev. While state laws often prohibit beer companies from owning their own distributors, several partner distributors of AB InBev currently work with Monster and would surely enjoy the added volume. AB InBev declined to comment.

Similarly, PepsiCo could likely find big synergies if it acquired Monster and added the energy drink company's products to its normal distribution routes. While U.S. beverages are less important to PepsiCo than Coca-Cola in terms of revenue and profit, the two companies face similar challenges in the domestic soda market. PepsiCo declined to comment to CNBC, but the company has said it is focused on smaller tuck-in acquisitions.

Read MoreInvestor: Coca-Cola 'hijacking' shareholder buyback

If Monster were gobbled up by a rival, the pressure on Coca-Cola to meet its long-term targets would likely intensify. The company has a target of doubling its 2010 revenue by 2020—including any acquisitions—which implies a roughly 7 percent annual growth rate. Unfortunately, that has proven a tough pace to achieve. Coca-Cola's company-wide organic revenue grew 6 percent in 2012 and 3 percent in 2013.

A natural solution would be for Coca-Cola to acquire Monster. The deal looks attractive both because of Monster's own sales growth as well as the opportunity to distribute its products to more locations, many of which Coca-Cola already serves. Indeed, a deal would add an estimated 4 percent to company-wide revenue in 2015 and 10 percent to operating profit, Swartzberg said.

Of course, valuation is often an issue with high-growth companies, particularly in recent months. But Monster trades at an enterprise value, adjusted for cash, of 12.9 times 2015 consensus earnings before interest, taxes, depreciation and amortization. That's less than Coca-Cola's multiple of 13.3 times, despite the beverage giant's weak stock performance over the last couple of years.

Read MoreBig dividend staple stocks show their dark side

Monster shares look like a reasonable deal considering its growth outlook. While Coca-Cola's U.S. carbonated-drink unit volume declined 2.2 percent in 2013, Monster's rose by 7.7 percent, according to Beverage Digest.

Diet Coke sales fizzle
Diet Coke sales fizzle

And Monster has only begun to expand overseas, where it generates about a quarter of revenue. By contrast, RBC Capital Markets analyst Nik Modi says 70 percent of global energy drinks are sold outside the U.S., suggesting there is plenty of runway for Monster.

The key risk for Monster investors has been concerns that its caffeinated drinks were a health risk. But while worries around diet cola appear to have lingered through 2013, Monster's sales have bounced back.

U.S. unit volume growth of Monster drinks fell to the low single digits in March 2013, when media mentions of the company peaked, according to Modi. But by the end of the year, Monster's volume returned to double-digit growth, as the negative headlines quieted.

What's more, attempts to ban Monster drinks have had little success. In Maryland, for instance, there was an attempt to prevent the sale of energy drinks to minors, but the state Assembly's economic matters committee voted against it by 22 to 1 last month.

Coca-Cola appears to have a cautious stance on large acquisitions. While it bought Vitaminwater parent Glaceau for $4.1 billion in 2007, Monster is much larger with a market capitalization of $11 billion. Since 1995, Coca-Cola has spent $28.7 billion on acquisitions, compared with $45.4 billion for PepsiCo, according to Dealogic. Coca-Cola declined to comment.

With Coca-Cola's growth outlook in question, it may be time for a change of heart.