Energy drink fans know that Monster Beverage (MNST) is one of the biggest names around. Meanwhile, Constellation Brands (STZ) is proving an up-and-comer in the field, with a string of alcohol brands to its credit like Modelo and Corona.
What happens when the two of them get together? We may find out sooner than we expect as merger talks are proceeding at this very moment. The two brands separately are solid companies, but a merged Monster and Constellation could be an absolute beast in the field.
Monster Beverage’s year in share prices has been one of steep gains and sharp lows. The stock has broken out above $95 per share five times in the last 12 months.
Nearly all of April 2021 was spent above $95, along with two days in June. Another couple of days in July saw over $95, as well as most of August through the first half of September.
Finally, late December into early January saw another breakout, though after that, the company retracted to nearly $80 per share. Constellation Brands, meanwhile, has been much more stable by comparison. The company has held between $207 and $254 for most of the last 12 months.
The latest news suggests that Monster Beverage and Constellation Brands are close to a merger now. In fact, reports note that an agreement could be just a matter of weeks away.
That assumes no serious hiccups emerge in the meantime, of course. Right now, the exact nature of the transaction is “unconfirmed” at this point, and given the disparity between the two companies’ share prices, it may take some doing to bring the two around to sufficiently common ground.
Wall Street’s Take
Turning to Wall Street, Monster Beverage has a Strong Buy consensus rating. That’s based on nine Buys assigned in the past three months. The average Monster Beverage price target of $107.98 implies 30.3% upside potential.
Analyst price targets range from a low of $104 per share to a high of $115 per share.
Brilliant, but Mismatched Merger
The good news here is that a merger between these two companies makes a lot of sense. They’re essentially competitors right now, but in joining up, they bring a lot of similar processes and operations to the table.
Monster has been working to expand its alcohol operations; just a few weeks ago, it bought CANarchy Craft Brewery for $330 million. Joining up with Constellation Brands would open up a whole new range of possibilities.
Granted, it’s a bit limited as Monster focuses a lot more on non-alcoholic operations, but Monster and Constellation together could be a serious drinks conglomerate. Throw in the fact that Coca-Cola (KO) owns about 20% of Monster and that could open up a whole new branch of operations.
The problem, though — and it’s a problem that suggests a course of action for anyone who believes this merger will go through — is the tremendous mismatch in stock price here. Monster is worth about $83 a share.
It’s trading well under its lowest, average, and highest price targets. However, it also represents about a third of the price of a share of Constellation Brands, running close to $228 per share today.
So it’s a safe bet that, for those who believe this merger will go throw, buying Monster is the best way to get in on the action ahead.
Monster’s dividend history, or lack thereof, would be a potential problem for anyone hoping to make it an income stock. Its potential as a growth stock — illustrated by the discrepancy between price target and current prices — is still fairly clear.
Constellation Brands’ dividend history, meanwhile, is a lot brighter for those looking for income stocks. Its steadily growing divided that’s at least close to the sector average — 1.29% against an average of 1.51% — makes it worth considering on that front.
Concluding Views
A merger between Monster and Constellation would likely open up some major new opportunities for both brands. There are certainly some economics of scale options that could be brought into play.
That’s especially so if Constellation handles the alcohol side. Monster branching out into alcohol might have been a good idea alone. However, the learning curve would have prevented it from being good right away. Constellation’s involvement all but removes that curve.
Regardless of the terms, the combined Monster and Constellation would likely deliver a lot of value for the investors. That’s every reason to be bullish on these two, particularly Monster. Monster should serve as a fantastic entry point into Constellation.
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