More Downside in Store for Hansen Natural?

Goldman Sachs comments on Hansen Natural (HANS) ahead of Q1 results scheduled for May 7. Firm notes they expect sales of $175mn (+46%) and EPS of $0.30 (+44%), ahead of consensus of $168mn and $0.29, respectively. This said, they think the potential for meaningful positive surprise is capped as aluminum and sweetener costs have gone up without any pricing, comps are tough, and Red Bull's 12-ounce and better competition from Pepsi have made modest dents in share growth momentum.

With 1Q EPS likely to be merely in-line, they see a downward trading bias. The stock fell -26%, -14% and -6% after the past 3 quarterly reports, which were all in-line or a penny ahead.

However, they see many reasons to own the stock into 2H2007 and believe visibility into some upside drivers could emerge during the tele-conference: 1) Hansen might talk more proactively about increasing prices (following Red Bull), 2) Hansen has new product news for the first time in 18-24 months, 3) a European distribution deal could be reached.

GSCO views valuation as attractive at 19-20X 2008 EPS, but are mindful for a potentially lower entry-point around the quarterly results. Maintains Neutral and $46 tgt.

Notablecalls: Note that Stifel's Mark Astrachan was out a bit cautious on HANS just two days ago. According to Mark, trade sources indicate that unit selling and promotion expenses for Monster and other Hansen products is up in the 1Q. He downplayed the impact of these costs to the investment thesis saying it does not mean the cost of doing business is increasing for HANS.

GSCO offers another piece of the puzzle saying Red Bull's 12-ounce and better competition from Pepsi have made modest dents in share growth momentum. Is this why HANS is stepping up their promotional activity? If this is true, cost of doing business may very well be increasing for HANS.

The stock is down just over a buck from Stifel's call but given GSCO's comments, I think there may be some more downside in store for HANS.

HANS 1-yr chart