Hansen's CEO confident of energy drinks' growth

NEW YORK - Hansen Natural Corp's chief executive Rodney Sacks does not need to sip his company's Monster energy drink to be revitalized -- a glance at his company's stock graph should do the trick nicely.

The stock of the No. 2 energy drink maker behind Austria-based Red Bull GmbH emerged as the clear winner on the Standard & Poor's 1500 index, rising 333 per cent in 2005 with an average daily share volume of more than 1 million shares.

"There's no exact science or answer as to why we have been successful," the South-African born Sacks said.

"What we did to make ourselves different was we created an aggressive personality and in-your-face image for the brand."

Earnings more than tripled in the third quarter of 2005, while sales doubled over the year-earlier quarter.

And in more good news, industry-wide US sales of caffeine-laced drinks are expected to jump 75 per cent, to US$3 billion ($4.38 billion), in 2006, says industry magazine Beverage Digest.

Hansen Natural, which promotes its brand through sports such as desert racing, motocross racing, surfing and skateboarding, plans to introduce a 238.13gm can for its Monster energy drink targeting women and older consumers.

Sacks added that his company, which was considered a lucrative takeover candidate before its stock soared, would be open to making an acquisition.

The beverage company's stock is trading at more than 30 times expected forward earnings compared with Coca-Cola Co's multiple of 18 times and PepsiCo Inc's 20 times.

The market for energy drinks, which typically contain caffeine, vitamins and other ingredients to boost energy, has grown rapidly since the 1990s.

Red Bull is the market leader with about 39 per cent market share, according to Beverage Digest. Hansen's Monster is in the No. 2 position, with a 16.3 per cent share.

PepsiCo -- with SoBe and Amp -- has a 13.3 per cent share and Coca-Cola's Full Throttle has an 8 per cent share.

But Corona, California-based Hansen is outpacing the industry, according to Citigroup analyst Gregory Badishkanian. The average analyst rating for the stock is "buy."

Badishkanian today raised his price target on the stock to US$130 from US$88, pushing the stock up nearly 14 per cent to a new life high of US$104.79.

"Energy drinks are enjoying phenomenal growth and Hansen has done a terrific job with its brands," said John Sicher, editor of Beverage Digest.

At one time, Hansen was considered an attractive addition to the portfolio of Coca-Cola or PepsiCo, which are facing sluggish sales in their soft drink businesses.

However, at current levels the company looks prohibitively expensive although it is well positioned to make an acquisition itself.

"It wouldn't make sense for the buyers to buy Hansen at its current value," Sacks, a former lawyer, said.

"We are looking for opportunities. We would be interested in buying if we found the right brand."

The success of Hansen Natural, which was listed as the No. 1 company in Forbes magazine's 2005 list of 200 best small companies, and other energy drinks has attracted many players into the market.

But some analysts have said that energy drinks are a fad, adding that Hansen will lose share from increased competition.

As a result nearly 23 per cent of the company's outstanding shares have been shorted as of December 8.

Short-sellers borrow shares of a company and then sell them in anticipation of a decline. They profit when the stock falls since they can buy back the shares at a lower price and pocket the difference.

Still, the stock has already risen 32.3 per cent over the first 13 days of this year.

"The shorts-sellers were banking on the industry not continuing to grow and us losing share with Coke coming in with Full Throttle. But they just got it wrong," Sacks said.

- REUTERS