Hansen Natural: Long Term Picture Looks Better Than Ever

Yesterday, Hansen Natural (HANS) reported 3Q 2007 results (note: this article was written before the company's conference call).

• Gross sales up 35.8% to $277.8 million from $204.6 million in 3Q 2006
• Net sales up 38.4% to $247.2 million from $178.6 million in 3Q 2006
• Cost of sales up to $118.83 million from $86.46 million in 3Q 2006
• Gross margin 51.9% from 51.6% in 3Q 2006
• Net income up 73.1% to $45.8 million ($0.46 per share) from $26.5 million ($0.27 per share) in 3Q 2006
• Profit margin 18.53% from 14.81% in 3Q 2006
• Diluted share count 98,895,000
• Cash and short-term investments $255.45 million
• No long-term debt

Analysts were on average expecting an EPS of $0.49 with sales of $258.39 million. So evidently analysts were getting their hopes up a little too much, because this was a superb quarter. Earnings are growing at a remarkable rate as well as sales, enough (in my opinion) to justify the rather high valuation the stock had received as of late. I say "had" because as I write this Hansen shares are down approximately 27% to around $41.00. If the market is unhappy with 70%+ growth in earnings, then I'll gladly take advantage of this opportunity. Let's review what position Hansen is in, shall we?

Hansen released Java Monster pretty recently; earlier this year. So far it seems to have gotten a very favorable reaction and it's still just getting started. I believe there is huge potential for Java Monster and it seems that management does too. Secondly, has anyone noticed that Hansen has $255 million in cash with no debt? This business is a cash generating monster (no pun intended), and the profit margin rose to 18.53%, the highest it's ever been at least since I've been following the company.

Hansen will now get a lot of cash flowing into its doors with Anheuser-Busch (BUD) running the whole distribution scene, so expect the balance sheet to keep getting stronger and stronger. Hansen is building itself one heck of a balance sheet which will give management the backing to develop new products and improve existing ones, increase operating efficiency, and possibly to even acquire some other businesses.

What I'm trying to get across is that Hansen is not struggling product-wise or financially. These are the same analysts who were dumping Hansen last winter because of the stock option investigation that turned out to be pretty much nothing. I continue to have very high confidence in Hansen and management's ability to execute. Hansen is just getting started internationally and there is still huge potential in the U.S. New products are being developed and I believe we'll be seeing many more. The TTM EPS now stands at $1.28. Currently the stock is sitting at $39.83. This puts the P/E at 31.12. I think this is enormously cheap considering how quickly earnings are growing now and how fast they may continue to grow in the future considering the company's huge potential to expand internationally and develop new products. Heck, Monster isn't even in front of Red Bull with energy drink market share. The company is just getting started.

Even though Hansen is my largest position in my portfolio, I'll likely be picking up some more shares. If the market gets as boneheaded with Hansen as it did last year, we're in for some great bargains. The only problem is that I'll need to sell something to get any cash in my stock account, so we'll see. Hansen's long-term picture looks better than ever and the company is greatly positioning itself. I love the business, believe in this management team, and in the long run I think the stock will strongly outperform the market. So there's no way I'm going to let this dip go by without picking up some more shares!

For the 4Q 2007, analysts are on average expecting an EPS of $0.40 with sales of $216.18 million.

Disclosure: Author has a long position in HANS

Comments

[non1]

You are so right about hans. Its a steal at this price! Thanks for the good analysis!

[TT-Pooh]

I am no analyst, but I am perhaps one of Hansen's biggest 1-man consumers. I have tried most all energy drinks, and can tell you that Monster is a superior product. In fact, I have not had a cup of coffee, nor have I been able to enjoy one since being so spoiled by, since discovering Monster Low-Carb.-- "Monster-Blue&quo... 10 cal.s, no sugar and tastes like friggin' cotton candy-- Superior!

I keep my eyes open, and I notice that people are buying the stuff, both blue and green. Red-bull tastes like shit and is also a rip-off on a price per ounce basis (1/2 the bev. for the same price!?) I will increase my holdings on a long term basis as Monster continues to take market share from Big-Soda and Big-Coffee.