What the New Monster Buyback Means for Shareholders Now

September 11, 2015 by Jon C. Ogg

Monster Beverage Corporation (NASDAQ: MNST) may not sound like an old well-established company that needs to consider buying back its stock, but it already had a buyback plan. After the close of trading on Friday came an official announcement from Monster Beverage that it board of directors has authorized a new share buyback plan which will allow the company to repurchase of up to $500 million of its outstanding common stock. The maker of energy drinks has said that there was no availability remaining under the previously authorized $200 million share repurchase program.

Repurchases will be made from time to time in the open market or through privately negotiated transactions. Monster said that the timing of the share buybacks will depend upon factors such as market conditions. Investors should know here that the company is not obligated to finish the program nor to purchase any shares in the market. In fact, Monster disclosed that this buyback plan can be suspended or discontinued at any time.

While some buybacks matter, and others do not, investors and Monster fans have two or three things to consider here. The first consideration is what this translates to against the market cap — which is up to $500 million, versus a $27 billion market cap. The second issue is that The Coca-Cola Company (NYSE: KO) completed the previously announced transaction for a long-term strategic partnership with more than a $2 billion investment just in June. A third issue would be the impact of the balance sheet.

The vast majority of Monster’s U.S. distribution of Monster Energy products transferred to Coca-Cola’s distribution network, and additional international transfers will be coming. Coca-Cola transferred ownership of its worldwide energy business to Monster, while Monster transferred its non-energy business (Hansen’s and others) to Coca-Cola. Monster said that the payment of $2.15 billion gave Coca-Cola an approximate 16.7% stake in the company. This new buyback could act to boost Coca-Cola’s ownership percentage in the company.

As far as the balance sheet, Monster’s cash and investments went from right over $1 billion in march to almost $3 billion in June. It had no long-term debt as of June 30, but its total shareholder equity is $4.85 billion and its net tangible asset base is $3.14 billion.

Monster Beverage shares closed up 0.4% at $132.77, and shares ticked up only marginally after the closing bell. It has a consensus analyst price target of almost $160.00 and it has traded in a range of $88.93 to $155.83 in the last 52-weeks.

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