This energy drink stock can rally more than 20% and overtake Red Bull in the U.S., HSBC says

Published Mon, Aug 14 20237:59 AM EDTUpdated Mon, Aug 14 202311:58 AM EDT

Monster Beverage could be the front-runner of the global energy drink market, according to HSBC. Analyst Carlos Laboy initiated the stock with a buy rating and assigned a price target of $72, which suggests shares stand to gain 23.8% in the next 12 months. "We still see ample room for the stock to outperform in the coming years with strong revenue and EBITDA expansion. Over the next five years, we project a 17% EBITDA CAGR," Laboy wrote in a Monday note, adding that he expects margin recovery to return to pre-pandemic levels by 2024. "We forecast revenue growth for Monster in the US ahead of industry growth, achieved through more targeted marketing and brands." The firm's target price is based on four primary growth drivers, including Monster growing its demographic base, Laboy said. Although Monster has skewed heavily to male consumers since its inception, Laboy said the bank sees Monster developing new labels and acquiring brands that should attract female consumers in the beverage giant's largest market: the U.S. The analyst added that Monster's launch into wellness and health-focused energy drinks — such as Reign Storm and newly acquired Bang Energy designed to target female consumers — should help the company come out ahead of international energy drink giant Red Bull in the "race for U.S. energy beverage leadership." Monster's entry into alcoholic ready-to-drink beverages in the U.S. and Canada is another growth opportunity, Laboy said. "We think this is an important growth opportunity for a brand already relevant in night-time accounts, as the lines between alcoholic and non-alcoholic beverages blur," he said. North America isn't the only home for Monster. Over the next decade, Laboy projected that Latin America — as well as Europe, the Middle East and Africa — could become a revenue source larger than the current size of Monster's business in North America. Revenue during this time period from the LatAm and EMEA energy beverage markets should triple from their current levels, he said. "We see room for better occasion-brand package-price-channel segmentation in LatAm, which is where Monster's LatAm bottlers are first in class," the analyst said. "In EMEA, we believe that Monster could triple revenues over the next 10 years if it can, through its Coke distributors, reach the same US-EMEA-LatAm revenue mix as The Coca-Cola Company." According to the note, the energy beverage market is worth over $20 billion in the U.S. and over $70 billion worldwide, and has been among the fastest-growing beverage categories for the past 10 years. Monster represents a significant chunk of the global market, having earned $6.3 billion in revenue in 2022, and earned nearly a third of U.S. energy drink revenues, Laboy said. Monster shares are up 14.6% this year, slightly lagging the S & P 500's 16.3% advance. MNST YTD mountain MNST in 2023 — CNBC's Michael Bloom contributed reporting.