Monster shares plunge as Coke plans energy-drink

Coca Cola

"We believe that the exception does not apply".

Monster shares fell 10 percent on Thursday morning after it revealed that it was in arbitration with Coke. The Company's Monster Energy Drinks segment sells ready-to-drink packaged drinks and non-carbonated dairy based coffee energy drinks primarily to bottlers and full service beverage distributors, as well as sells directly to retail grocery and specialty chains, wholesalers, club stores, mass merchandisers, convenience chains, food service customers, and the military.

"We also think the value proposition is likely to be an impediment, assuming the Coke offerings are line-priced to energy products, particularly in the USA, the world's largest energy drink market". The plunge came after Monster said on an earnings call late Wednesday that it has engaged in arbitration with Coke over the company's plans to produce its own line of drinks. She expects it to have no more than a 4% effect on Monster's sales and views Monster as too important a partner for Coca-Cola to endanger the partnership-a point on which several analysts agree.

Sacks argues that the move violates a 2015 partnership struck between the companies, in which Coke took a 17 percent stake in Monster and agreed to distribute the company's energy drinks worldwide. "As some of you may have read, Coca-Cola has developed two energy products it believes it may market under an exception relating to the Coca-Cola brand" he said in transcripts, while also noting the status of the dispute.

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The drinkmaker has agreed to suspend the launch of launch of Coca-Cola Energy until April next year, Sacks said. Stifel analysts said they were surprised by the news as they do not rate Coke's changes of gaining traction in the space. Monster Beverage Corporation (MNST) has risen 3.94% since November 9, 2017 and is uptrending.

"The potential gain is not worth risking a good alliance", he said. The Coca-Cola had a net margin of 8.70% and a return on equity of 43.12%. "Ultimately, we think this adds credence to our thesis that Coca-Cola will eventually acquire Monster Beverage, although not likely before the end of 2019".

In the meantime, Coca-Cola's new proposed drinks are already doing damage to Monster despite any release being months away.

Guggenheim rates Monster a buy with a stock price target of $72, or 45% below its current trading level. Empirical Finance LLC now owns 6,752 shares of the company's stock valued at $296,000 after acquiring an additional 1,983 shares during the last quarter. Wells Fargo has a market perform rating on the stock, while JPMorgan rates it as neutral.

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