Monster Beverage Corp. shares jumped as much as 7.4 percent after Evercore ISI said McDonald’s Corp. is testing the energy drinks at its restaurants, potentially opening up a new growth area.
McDonald’s has seen “positive results” after trying out Monster beverages at a few locations, Robert Ottenstein, an Evercore analyst in New York, said in a note Tuesday. Getting the energy drinks into quick-service restaurants like McDonald’s could add as much as $1.5 billion in additional revenue for Monster in the U.S. alone, he said.
The U.S. “remains a significant growth market, largely due to underexploited distribution channels like Coca-Cola coolers and vending machines, as well as food service,” Ottenstein said in the report. Tapping the U.S. fast-food market could boost Monster earnings by $1.30 to $2 a share, he said.
The stock climbed as high as $142.49 after the report was published, marking the biggest intraday gain since May. The shares were already up 22 percent this year through Monday’s close.
Monster, based in Corona, California, forged a pact with Coca-Cola Co. last year that transferred all of its U.S. and Canada distribution to the soda giant. Coca-Cola also agreed to swap some brands and buy a 17 percent stake in Monster for about $2.15 billion.
McDonald’s started testing Monster energy drinks in 12 stores in suburban Detroit over the summer, Ottenstein said in the note. The beverages are typically sold as part of a value meal, with customers paying about $1.50 more to get the Monster drink.
The move is “generating incremental revenue and traffic for stores, with some customers coming in just to purchase Monster,” he said.