Benzinga | Jul 17, 2020 11:44AM EDT

Monster Beverage Could Be Targeting $3.8B Hard Seltzer Market

Monster Beverage Corp (NASDAQ:MNST) shares are up 18% in the last three months, and recent rumors have suggested that the company may be planning to launch hard seltzer products in 2021.

Hard seltzer is an attractive opportunity for Monster, and the company has multiple potential paths to take forward, BofA Securities analyst Peter Galbo said Friday.

The Hard Selzter Numbers: Monster could boost 2021 revenue by between $100 million and $120 million if it chooses to launch hard seltzer products, Galbo said in a note.

He predicts Monster would likely choose to brand a hard seltzer differently than its energy drink brands. And given legal issues with caffeinated alcoholic beverages like Four Loko in the past, the analyst said Monster's seltzer would likely not contain caffeine.

BofA estimates that hard seltzers are one of the highest-growth beverage segments of 2020, on track to end the year at $3.85 billion in retail sales. That's roughly a 10% market share of the beer and flavored malt beverage space.

Galbo projects hard seltzer sales could grow by more than 40% in 2020 and reach more than $5.5 billion in sales.

It's unlikely Monster would partner with its Coca-Cola Co (NYSE:KO) bottler network to produce a hard seltzer, and would likely instead partner with a beer distribution network, such as Anheuser Busch Inbev NV (NYSE:BUD), the analyst said.

Potential Buyout Deal? While Monster could develop its own hard seltzer products internally, Galbo said the company could also choose the expensive route of buying an existing product.

He estimates Monster's balance sheet could tolerate up to $7.5 billion in additional debt, but finding an attractive target may be the hardest part.

"Given limited private manufacturers with meaningful share, and a valuation multiple likely above MNST's current valuation (~8x CY21 sales) we believe a substantial equity check would be required to complete an acquisition," the analyst said.

BofA has a Buy rating on Monster with an $80 price target.

Benzinga's Take: Hard seltzer has certainly been a red-hot market within the alcohol space in recent years, especially among attractive younger demographics.

The potential danger of investing in such a hot product is determining whether the market share shift is permanent or just a temporary trend

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Photo courtesy of Truly.