Energy drinks have been getting a considerable amount of negative publicity regarding health concerns, which has led to a decline in consumption. This, along with soft consumer spending and market saturation from competitors, has triggered a strong sell-off in two of the most popular energy drink brands: Monster Beverage Co. (NASDAQ: MNST) and Celsius Holdings Inc. (NASDAQ: CELH). The convenience store channel generates over 62% of energy drink sales. Foot traffic has been steadily increasing since February 2024, which bodes well for recharging energy drink sales.
While both stocks are underperforming the consumer staples sector, which is up 14% year-to-date (YTD) as tracked by the Consumer Staples Select Sector SPDR Fund ETF (NYSEARCA: XLP), one is leading the YTD gains, the other may present more upside. Let's take a closer look at both companies.
Monster Beverage: Rocket Fuel for Adrenaline Junkies
Launched in 1985 with over 5,600 employees, Monster Beverage is the industry giant, while Celsius Holdings, founded in 2004 with just over 700 employees, is the up-and-comer challenging the status quo. Monster is a well-recognized brand among 18 to 34-year-olds who are active fans of alternative and extreme adrenaline-rush sports and activities. They specifically sponsor brands with that demographic, including NASCAR, Ultimate Fighting Championships (UFC), Big3 Basketball, Professional Bull Riders Association (PBA), X-Games, and the Call of Duty League. Monster Energy is synonymous with professional drivers, skateboarders, and video gamers, and it embodies its motto, "Unleash the Beast."
Coca-Cola Invested $2.15 Billion for a 16.7% Stake in Monster Beverage
Coca-Cola Co. (NYSE: KO) invested their initial $2.15 billion in Monster Beverage for a 16.7% stake in 2015. Coca-Cola was also their distributor. Investors believed they would someday acquire Monster Beverage completely. However, Coca-Cola spread its bets and diversified its energy drink offerings by adding and investing in other brands like Full Throttle, NOS, Burn, Ultra, Predator, and BPM Energy Drink.
Still Growing But at a Slower Rate
In its second quarter of 2024, Monster Beverage reported a 2.4% year-over-year (YoY) revenue growth at $1.9 billion, short of the $2.01 billion consensus analyst estimates. Even its EPS of 41 cents missed analyst expectations by 4 cents.
However, gross profit margins improved 110 bps to 53.6% due to lower freight-in and aluminum can costs, partially offset by production inefficiencies.
Energy drink case sales grew 6.9% to 212.19 million, but average net sales per case fell 3% to $8.73.
Monster does 4x more sales than Celsius and has 5x more outstanding shares.
The Industry as a Whole Has Been Soft
The company stated that the energy drink category in the United States and certain other countries had lower growth in the second quarter. Convenience stores have less foot traffic, and retail is shifting towards more mass and dollar channels. The convenience store channel generates nearly 63% of energy drink sales. Tighter consumer spending and weaker demand were all factors that pressured sales. This applies to all energy drink companies.
Celsius Holdings: The Science-Backed Energy Drink For the Fitness Lifestyle
Newer-comer Celsius Holdings targets health and fitness-conscious consumers between the ages of 18 to 44, particularly Gen-Z-ers. Its energy drinks promote a healthy and natural lifestyle with science-backed data from six published university studies underscoring a more refined and sophisticated type of functional beverage. Celsius drinks are low-calorie, have no artificial preservatives or flavors, are no aspartame, and are no high fructose corn syrup. They also include vitamins and antioxidants. Celsius energy drinks have gone viral on social media platforms like TikTok, with users even claiming the drinks have GLP-1 qualities like Ozempic made by Novo Nordisk A/S (NYSE: NVO). Of course, that’s not the case, but it’s good PR for weight-loss seekers.
Celsius claims its MetaPlus blend has thermogenic fat-burning properties that can help your body burn more calories and body fat than with just regular exercise alone. It promotes its drinks as "your ultimate fitness partner," combining a "clinically proven formula of healthier, energy-boosting ingredients with your own body's physical activity." In a nutshell, Monster versus Celsius's target audiences contrasts greatly with adrenaline junkies versus fitness enthusiasts.
PepsiCo Expands Energy Drink Portfolio to Rival Coca-Cola
Not to be outdone by Coca-Cola, PepsiCo. Inc. (NASDAQ: PEP) is also a major energy drink player with its iconic Gatorade brand. Pepsi took a $550 million 8.5% stake through convertible preferred stock in Celsius Holdings in August 2022. Pepsi is also their distribution partner and has one board seat.
Celsius Is Still Beating Analyst Expectations and Expanding Internationally
For its second quarter of 2024, Celsius Holdings reported an EPS of 28 cents, beating analyst estimates by 5 cents.
Revenues climbed 23.4% YoY to $402 million, beating consensus estimates for $391.07 million. Celsius had U.S. retail sales grow 36.5% YoY, and international sales rose 30% YoY. Its gross profit margin improved 220 bps to 52% in the second quarter.
Celsius commenced sales in the U.K. and Ireland in the quarter through the fitness channel, and select gyms and sales in Australia, New Zealand, and France are expected in the second half of 2024.
Comparing the Upside Potential: MNST vs. CELH
Monster Beverage stock is trading down 6% YTD, down 11.70% from its 52-week high of $61.23, and at 43.5x forward earnings. Its consensus analyst price target is $55.68. It has 12 analyst Buy ratings, six Hold Ratings, and two Sell Ratings. It has a $56.3 billion market cap, about 7x more than Celsius. It has a 2.2% short interest. Based on consensus price targets, Monster Beverage's upside is limited to just 3%.
Celsius Holdings stock is trading down 37.91% YTD and 66% from its 52-week high of $99.62. It's trading at 41.2x forward earnings. CELH stock was in "nosebleed" territory in the $90s, making it appear to be a bargain-priced in the $30s. Its consensus analyst price target is $57.29. It has 12 analyst Buy ratings, two Holds, and one Sell rating. It has a 9% short interest, 4x more than Monster. Celsius has a $7.89 billion market cap. In fact, its run-up prior to its Nov. 23, 2023, 2-for-1 stock split was largely attributed to a short squeeze. Celsius Holdings has a 69.2% upside to reach its consensus price target, which makes it the winner in this race.
