Hansen Natural: Quenching Thirst With Record Profits

Aug.10.10 | About: Monster Beverage (MNST)

It was a record quarter for Hansen Natural Corporation (Nasdaq: HANS). Hansen Natural announced financial results for the three-months ended June 30, 2010 reporting an EPS of $0.69 on gross sales of $415.3 million, beating the consensus estimate of an EPS of $0.66 on revenues of $324.98 million. The record sales and profits were primarily driven by the Monster brand which continued to outpace the growth in the energy drink category.

According to Nielsen, sales in this category for the three months ended June 5, 2010 increased by 10.8% compared to the corresponding period last year. During this time period, sales of Monster increased by 12.7%. A similar trend was seen in the international markets wherein Monster’s sales and market share continued to improve.

HANS continues to enjoy strong financials with no long term debt, a current ratio of 4.84 and a return of equity of 33.4%. Based on the last few quarterly results, I am projecting revenues of $1,261 million and a 2010 EPS of $2.32. For the financial year 2011, I am initiating a revenue estimate of $1,387 million and an EPS estimate of $2.54.

Fair value was calculated using relative valuation. This was performed by comparing HANS to its historical multiples, peer group and the S&P500 index. The results are presented in the table that follows. It should be noted that the data from the last four financial years was taken in calculating the averages shown in the table.

Hansen Natural

Existing

Average

Fair Value

P/E

20.75

27.7

$60

P/S

3.51

4.47

$58

(P/E) / (P/E – Peers)

1.10

1.37

$56

(P/E) / (P/E – S&P 500)

1.18

1.40

$54

Average

$57

Click to enlarge

Based on this analysis and an optimistic view of Hansen Natural’s medium term prospects, I am revising my price 12-month target from $40 a share to $54 a share by applying a P/S of 4 to my 2010 estimate. At these levels HANS would be trading modestly below its historic multiples.

Disclosure: Author is long HANS