The Federal Drug Agency says it has received reports on five deaths in the past year, citing Monster Energy drink as a possible cause. The drink is high in caffeine and is a popular energy drink. It should be noted that the report filed by Monster does not prove a link between Monster Energy and the fatalities or health problems. Shares of Monster Beverage Corp (NASDAQ:MNST) have tanked 14% on the news.

Monster drinks

Some of the key questions investors had before this news.

  •  Impact of upcoming FDA guidance on the formulation and marketing of energy drinks.
  • Marketing energy drinks as dietary supplements or conventional foods – does it matter?
  • Similarities/differences between FDA/Senator Durbin matter and New York State AG subpoena. Which is more concerning and why?
  • Range of outcomes and the potential impact on Monster Beverage Corp (NASDAQ:MNST).

Stifel Nicolaus had a very timely downgrade of the stock, albeit for different reasons, including regulatory.

Two weeks ago, Stifel Nicolaus downgraded shares of Monster Beverage Corp (NASDAQ:MNST) to Hold from Buy, as they  expect a greater-than-anticipated deceleration in sales growth through 1Q13. Monster Beverage’s sales growth missed expectations in 2Q12 and subsequent U.S. scanner data has showed further slowdown.

Recent channel checks, including attending the National Association of Convenience Stores show earlier this week, adds conviction to their view. While they attribute the deceleration mainly to increasingly difficult y/y comparisons and lapping the successful introduction of Monster Rehab, we believe the earnings multiple is unlikely to expand until sales
re-accelerates and/or expectations are reduced.

Stifel also noted,  that the regulatory risk remains. They stated that regulatory risk remains an overhang, pending greater clarity on the outcomes of the 1) New York state attorney general subpoena and 2) Senator Durbin/FDA scrutiny. While hard to handicap any outcome, particularly timing of any eventual resolution, they believe a change in labeling could ultimately satisfy some/many of the Durbin and AG concerns.

Disclosure: No position