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Why Monster Beverage Stock Is Falling Today

By Anders Bylund - Mar 11, 2020 at 11:40AM

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The energy drink veteran faces stronger competition, as soda titan PepsiCo is buying one of Monster's leading rivals.

What happened

Shares of Monster Beverage (MNST 0.81%) traded 6% lower at noon, EDT, as soda-and-snacks giant PepsiCo (PEP 1.31%) announced a $3.85 billion acquisition in the energy drink sector.

So what

Pepsi is tapping into the rapidly growing energy drink market with a buyout of long-established energy brand Rockstar Energy Beverages. Pepsi aims to accelerate Rockstar's growth through its global distribution network and massive marketing assets, and may also fold some of Rockstar's energy drink innovations into Pepsi's own brands, such as Mountain Dew. The deal is expected to close in the first half of 2020 but won't make a material impact on Pepsi's financial results until next year.

Monster's investors shuddered at the thought of another well-heeled rival entering the energy drink market.

A chessboard with two rows of opposing pawns and a single king in the center, half white and half black.

Image source: Getty Images.

Now what

This isn't the first time Pepsi has dipped a toe in the energy drink waters, but earlier attempts have gone largely unnoticed. Grabbing Rockstar's 5.5% share of the American market is a more serious attempt.

At the same time, Pepsi's splashy entrance might motivate Monster partner Coca-Cola (KO 0.76%) to simply acquire the leading energy drink company. Coke already holds a 19% stake in Monster and has been managing the company's distribution network since 2008. Taking the next step with a complete buyout wouldn't be much of a surprise, and Pepsi's presence just might be the last straw that triggers that transaction.

That's all speculation, of course. What we have today is a more powerful infrastructure behind a reasonably successful rival, and the negative market reaction makes sense from that perspective. I would still argue that long-term investors should take a closer look at Monster at a lower buy-in price, especially if they're expecting a takeover by Coca-Cola someday soon.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Monster Beverage. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Monster Beverage Corporation Stock Quote
Monster Beverage Corporation
MNST
$90.02 (0.81%) $0.72
The Coca-Cola Company Stock Quote
The Coca-Cola Company
KO
$63.70 (0.76%) $0.48
Pepsico, Inc. Stock Quote
Pepsico, Inc.
PEP
$177.33 (1.31%) $2.29

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