Foolish Forecast: Entrancing Hansen

Thursday morning, I'm having a Monster for breakfast. Energy drink brewer Hansen Natural (NASDAQ:HANS) reports third-quarter earnings bright and early. Check out what happened in the second quarter, then come back here for a quick hit of taurine and ginseng.

What Fools say:
Here's how Hansen's Motley Fool CAPS scoring rates against some of its peers and competitors:

One CAPS player loves this stock, calling it the "Pepsi to Red Bull's Coke. ... They'll likely be acquired in the next two years, but that's life." Another bull of unspecified color likes Hansen for its "Excellent products and distribution," along with strong financials.

On the downside, some of our players deride the valuation, at more than 54 times trailing earnings, and one angry bear calls out Hansen's peak right here, because people "know when companies are selling drugs legally."

What management says:
Red Bull still has the European energy-drink market largely to itself, but Hansen is planning to make inroads in the Old World. "The fact of the matter is that we can't rush in and make a mistake and not do it right," said Hansen CEO Rodney Sacks in the last earnings call. "We are looking at sponsorship opportunities there, we are involved in some motor sports that translate very well into Europe. We have got that motor sport share and we are looking to extend their end agreements and to go into Europe and other places. I will be able to report more on that and some progress when we report on the next quarter." So look for more detail on the European plans Thursday.

What management does:
Gross margin remains stable, but the more tangible profit margins are losing fizz, quarter by quarter. Hansen is simply growing up, and is scaling the sales and support infrastructure to be able to carry a bigger operation. Trailing-12-month sales won't hit $1 billion this time, but that distinction should be reachable in a year or so, given these growth trends.

One Fool says:
Founded in the 1930s, Hansen Natural was a successful but unremarkable business for decades. Shares were listed on Nasdaq in the 1980s, but didn't move very far to begin with. This was back when Hansen was a premium juice specialist.

And then the energy drink genie came to visit a few years ago, leaving a Monster under Hansen's pillow. The quiet days were over. The share price stayed low in 2002, nearly doubled in 2003, and broke off a 350% return in 2004. Even if you didn't get in until January 2005, you'd be sitting on a 1,300% return today, including a 75% run-up so far this year.

Yes, I'm a happy shareholder and the company is certainly doing a lot of things exactly right. But as part of the maturation process, I think it's time to take a fresh look at Hansen's bylaws and corporate governance.

Those takeover concerns are real, for example; maybe it's time to decide if Hansen actually wants to be acquired, or else implement some takeover defenses like a poison pill provision or staggered board terms. Also, a bit of fresh blood on the board wouldn't hurt. It shouldn't be too hard to attract a few bright minds from the retail or consumer goods industries -- a touch of marketing expertise, a dash of logistics magic -- given Hansen's newfound market stature.

We're only a quarter plus a couple of weeks away from the next annual shareholders' meeting, where these kinds of matters can be settled. In the meantime, Hansen is chugging along just fine as distribution agreements with Pepsi in Canada, Cadbury in Latin America, and Anheuser-Busch (NYSE:BUD) in the states are doing the heavy lifting right now.

Sell if you think energy drinks are another fad; buy if you think that 20 years of Red Bull history has established a caffeine-source alternative to Starbucks (NASDAQ:SBUX). Boom or bust, Hansen remains a legitimate leader in that market.