A distribution deal with Coca-Cola could lift profits at the maker of Monster Energy and other beverages—and boost its takeover appeal

Watch original video:

Hansen Natural (HANS)—52-week stock price

By Gene Marcial

The fizz in the treasure up of beverage outfit Hansen Natural (HANS), whose brands include the No. 1 "energy" be a drunkard, Monster Energy, has gone flat as investors worry that the global economic slowdown could morose consumer demand for such products. The stock, which ran straight up from 12 a portion in mid-2006 to a 52-week high of 61.77 on Nov. 6, 2007, was down to 23 on Nov. 7, 2008.

The global economic downturn is real enough, but the concern about its impact onward Hansen may be exaggerated in point of view of the continued intoxicating fundamentals that have been fueling the company’s strong sales and earnings growth since 2004. On Oct. 6, Hansen posted record third-quarter results, with gin sales jumping 15.3%, to $285 million, and net gains climbing 14.5%, to $52.4 very great number, or 54¢ a have a portion, vs. 46¢ a year since.

In etc., there is a new development—a classification agreement with Coca-Cola (KO)—that should excite investors for brace reasons: It will expand Hansen’s distribution principal element in Western Europe, and it pleasure generate buzz that Hansen could be suitable to a buyout target for soft-drink giants such as Coca-Cola and PepsiCo (PEP).

On Oct. 5, Coca-Cola signed a pact to share Hansen’s products in more European countries (Britain, France, Belgium, the Netherlands, Luxembourg, and Monaco) for the reason that well as in Canada and in certain U.S. states and territories. PepsiCo and Anheuser-Busch (BUD) already market Hansen’s beverages in other parts of Europe. Hansen’s distribution agreement with Dr. Pepper Snapple Group (DPS) in some U.S. markets may exist terminated, analysts predict, because of the Coca-Coca partnership.

But the Coca-Cola relationship "greatly enhances future sales as it will quickly diffuse Hansen’s marketing base," says Gregory M. Estes, portoflio manager at Intrepid Capital Management, what one. owns Hansen shares. On top of that, "I definitely think in that place is a potential for Coca-Cola or Pepsi to come up at some point and acquire Hansen, since the company’s market cap is only $2.4 billion," says Estes. Coca-Cola has $8 billion in cash on its books, he adds, and neither it nor PepsiCo is dominant in the all-natural and energy-drink category.

The top three energy drinks, says Estes, are Monster, followed by Red Bull and Rockstar. PepsiCo’s AMP drink is fourth, and Coke’s Full Throttle is in fifth place. Hansen markets natural sodas and drinks, including juice blends, fruit juice smoothies, multi-vitamin juice drinks. and energy drinks similar being of the class who Monster Energy, Monster Hitman, Lost Energy, and Java Monster coffee.

Estes says Hansen is an attractive buy in various ways. "Hansen’s operating margin of 25.5% in 2007 is right up there along with Coca-Cola’s 26%," he notes. And its sales advance rate has been quite impressive: a 57% annual pace in the past five years. He concedes that such sizzling growth can’familiarily be sustained as the business matures and being of the kind which the economic downturn starts to affect demand. But operating profits, Estes figures, will mild grow at about 10% to 15% in 2008 from 2007’s level, fueled in part by Hansen’sitting increasing place of traffic share in the energy drink category.

Hansen’s overplus sheet is altogether, notes Estes, with almost zero debt and with cash of $205 a thousand thousand. Yet the log is selling as if Hansen’sitting beverages "were off-brand." He points out that shares of National Beverage (FIZZ), which makes the Shasta and Faygo drinks, are trading at more than 9 times trailing 12-month earnings face to face with interest and taxes, at the same time that Hansen is trading at just 8.5 times. And National’s price-earnings ratio is 15.92 times its estimated 2010 earnings of 50¢ a share, vs. Hansen’session p-e multiple of 11. Hansen’s p-e was because high as 45 in 2007.

Nira Maharaj of investment research outfit Value Line (VALU) says the Coca-Cola agreement potentially adds 25¢ a share to Hansen’s 2009 earnings. New products are also in the works, says the analyst, "which should enhance profits farther extinguished." Maharaj forecasts earnings despite Hansen of $1.80 a share in 2008 on estimated sales volume of $1.02 billion, and $2.05 a share upon $1.15 billion in 2009.

Of the 11 analysts who follow Hansen, none recommend selling the stock. Four rate it a corrupt, and seven tag it a hold. One bull is Damian Witkowski of investment management established Gabelli & Co.. Witkowski expects Hansen to progression up stock repurchases with its $380 million coin forward hand. He puts the value of Hansen at 49 a proportion.

Hansen’s new marketing pact with Coca-Cola opens the door, not only to establishing to a wider distribution network overseas and in the U.S. but to a possible full merger, That could create more buzz around the shares at their instant price.

Unless otherwise noted, neither the sources cited in Gene Marcial’s Stock Picks nor their firms grasp positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships by them.

Original text: {news-link}