Monster Beverage Corp (MNST) and Potash Corp. (POT), both with higher-than-industry-average margins and solid cash flow, received positive updates from analysts recently. Both stocks will be analyzed fundamentally and technically in this article. Investing strategies will also be presented.
Monster Beverage Corp
MNST was down 0.86% and closed at $47.34 on March 8, 2013. MNST had been trading in the range of $39.99-$83.96 in the past 52 weeks. MNST has a market cap of $7.85B with a low beta of 0.30.
On March 8, 2013, Nielsen convenience store data showed that the energy drink category was up 6% for the four weeks ended February 16, 2013 while MNST outpaced the group at +7.4% and resumed its share gains. Goldman Sachs has a buy rating and price target of $61.00 on MNST. The analyst stated,
Given the negative commentary on overall c-store traffic from our industry contacts, the tough compares for MNST, and lackluster persons at work data for the construction/natural resource sector, we are somewhat encouraged by this +7.4% number as MNST sales in AOC+C-store are now up 7.3% quarter to date vs. our +8% estimate for 1Q13 US DSD sales for the company.
Analysts currently have a mean target price of $60.00 and a median target price of $61.00 for MNST. Analysts, on average, are estimating an EPS of $0.47 with revenue of $504.24M for the current quarter ending in March, 2013. For 2013, analysts are projecting an EPS of $2.26 with revenue of $2.33B, which is 13.10% higher than 2012.
There are a few positive factors for MNST:
- Higher revenue growth (3-year average) of 21.7 (vs. the industry average of 6.2)
- Higher operating margin of 26.7% and net margin of 16.5% (vs. the industry averages of 17.4% and 12.0%)
- Stronger ROE of 41.9 (vs. the average of 26.5)
- MNST has a total cash of $319.56M with zero total debt
- MNST generates an operating cash flow of $287.68M with a levered free cash flow of $260.29M
Technically, the MACD (12, 26, 9) indicator is showing a bearish trend. The momentum indicator, RSI (14), is declining and indicating a bearish lean at 41.67. MNST is currently trading below its 50-day MA of $49.42 and 200-day MA of $57.29. The next support is $46.31, the S1 pivot point, followed by $42.17, the S2 pivot point, as seen from the chart below.
How to Invest
Despite the latest positive sales number and strong margins with a solid balance sheet, MNST is technically bearish in the near term. Investors might want to establish the long-term position after seeing further price stabilization. A safer entry price will be around $42/$43.
POT was up 1.29% and closed at $40.18 on March 8, 2013. POT had been trading in the range of $36.73-$47.67 in the past 52 weeks. POT has a market cap of $34.76B and a beta of 1.08.
On March 8, Analysts at Berenberg see more evidence that potash prices have reached a floor. Analyst Gunnar Cohrs commented,
More markets in the key region of Southeast Asia are accepting the new spot price levels, providing additional support to the thesis that potash prices have reached a floor and that there is now limited downside risk going further into 2013. Only India remains problematic: there, the market is still waiting for news on the subsidy policy for fertilisers, which many market participants hope will reduce the imbalance it has created between the prices of different types of fertilisers. As the government has already set its budget, we expect some news over the next few weeks.
Analysts currently have a mean target price of $46.03 and a median target price of $45.00 for POT. Analysts, on average, are estimating an EPS of $0.61 with revenue of $1.86B for the current quarter ending in March, 2013. For 2013, analysts are projecting an EPS of $3.03 with revenue of $8.19B, which is 3.40% higher than 2012.
There are a few positive factors for POT:
- Higher revenue growth (3-year average) of 25.8 (vs. the industry average of 4.9)
- Higher operating margin of 38.1% and net margin of 26.2% (vs. the averages of 27.1% and 18.3%)
- Lower Forward P/E of 12.0 (vs. the S&P 500's average of 14.1)
- POT generates an operating cash flow of $3.22B with a levered free cash flow of $186.50M
- POT currently offers an annual dividend yield of $2.79%
Technically, the MACD (12, 26, 9) indicator just turned to show a bullish sign on the last trading day. RSI (14) is picking up but is still slightly bearish lean at 46.88. POT is currently trading above its 50-day MA of $41.28 and 200-day MA of $41.11, as seen from the chart below.
How to Invest
With solid revenue growth and strong margins, POT represents a good buy at current valuation, supported by the stabilization of potash price. For bullish investors, a credit put option spread of June 22, 2013, $35/$38 put can be reviewed. Investors can also review the following ETF to gain exposure to POT:
- MSCI Global Agriculture Producers Fund (VEGI), 8.64% weighting
- Global Agriculture Portfolio (PAGG), 7.79% weighting
- Market Vectors-Agribusiness ETF (MOO), 6.84% weighting
Note: All prices are quoted from the closing of March 8, 2013. Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in POT over the next 72 hours.