After A 15% Fall This Year Is Monster Beverage A Better Pick Over Intuitive Surgical Stock?

We believe that the beverage company – Monster Beverage (NASDAQ: MNST) is currently a better pick over the robotic surgical platform maker Intuitive Surgical stock (NASDAQ: ISRG). The decision to invest often comes down to finding the best stocks within the scope of certain characteristics that suit an investment style. In this case, although these companies are from different sectors, they share a similar revenue base of around $7 billion and a similar operating income of a little under $2 billion. Although Intuitive Surgical has seen a better revenue growth, Monster Beverage is more profitable. There is more to the comparison, and in the sections below, we discuss why we think MNST will outperform ISRG in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation.

1. Monster Beverage Stock Has Outperformed Intuitive Surgical In The Last Three Years

ISRG stock has seen strong gains of 60% from levels of $275 in early January 2021 to around $440 now, vs. an increase of about 100% for MNST stock from $25 to $50 over the same period. This compares with a 45% rise for the broader S&P 500 index over this period. However, the increase in these stocks has been far from consistent. Returns for ISRG stock were 32% in 2021, -26% in 2022, and 27% in 2023, while returns for MNST were 4%, 6%, and 127% over these years, respectively. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that ISRG underperformed the S&P in 2022 and MNST underperformed the S&P in 2021.

In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Health Care sector including UNH and JNJ, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could ISRG and MNST underperform the S&P over the next 12 months — or will they see a strong jump? While we expect both stocks to trend higher, we believe Monster Beverage will outperform Intuitive Surgical.

2. Intuitive Surgical’s Revenue Growth Has Fared Better Than Monster Beverage

Intuitive Surgical’s revenue grew at an average annual rate of 18% from $4.4 billion in 2020 to $7.1 billion in 2023. In comparison, Monster Beverage saw its sales rise at an average rate of 16% from $4.6 billion to $7.1 billion over the same period.

Intuitive Surgical’s revenue growth has been driven by a rebound in procedure volume, which was adversely impacted in the initial phases of the pandemic due to the shelter-in-place restrictions. The company continues to expand its installed base, which results in the growth of recurring revenues, such as consumables. For perspective, Intuitive Surgical’s installed base has increased 55% to over 8,600 in 2023, compared to around 6,000 in 2020. Intuitive Surgical secured the U.S. FDA approval of its next-generation platform — da Vinci 5 – in March 2024. It placed eight of its new systems during the previous quarter. The new platform will likely bolster sales growth in the coming years. The company expects procedure volume growth to be in the mid-teens in 2024.

Monster Beverage’s revenue growth has been driven by a solid demand for its energy drinks. New product launches and expansion in international markets along with a pricing growth has also bolstered its overall top-line expansion lately. For perspective, its average sales per case (24 eight-ounce servings) declined from $9.06 in 2020 to $8.82 in 2022 but saw a sharp rebound to $9.01 in 2023. The total number of cases sold surged by 52% between 2020 and 2023. Monster Beverage will likely continue to see its sales trend higher, led by volume and pricing gains.

Looking forward, we expect Intuitive Surgical to see its revenue rise at an annual growth rate of 9% to $9.3 billion, while Monster Beverage to see its sales expand at a 7% average annual rate to $8.8 billion in the next three years.

3. Monster Beverage Is More Profitable

Intuitive Surgical’s operating margin rose from 24.1% in 2020 to 24.8% in 2023, while Monster Beverage’s operating margin contracted from 35.5% to 27.4% over this period. This can be attributed to supply-chain constraints and falling prices for Monster Beverage. This situation reversed in 2023, with support from pricing actions and the company’s decreased reliance on imported cans. Looking at the last twelve-month period, Monster Beverage’s operating margin of 27.4% fares slightly better than 25.3% for Intuitive Surgical.

Looking at financial risk, both companies are comparable. Both Intuitive Surgical and Monster Beverage are debt-free companies, while both have similar cash as a percentage of assets of around 33% to 35%. This implies that these companies have a solid financial position.

4. The Net of It All

We see that Intuitive Surgical’s revenue growth has been better than Monster Beverage, while the latter is more profitable. Now, looking at prospects, we believe Monster Beverage is the better choice of the two. Both stocks have seen a rise in their valuation multiples, with ISRG stock trading at 22x trailing revenues, versus 18x average over the last five years, while MNST stock trades at 7x revenues, versus 5x average over the last five years. This can be attributed to strong sales growth and a rebound in operating margins lately, a trend expected to continue in the near-term. Still, we think MNST stock will fare better between the two, given its recent pricing actions and focus on cutting costs. There has been a robust growth in demand for energy drinks, evident from Monster Beverage’s 52% growth in number of cases sold since 2020. This trend is expected to continue, with the company’s new product launches and expansion in international markets. Intuitive Surgical will also benefit from its new platform, aiding the expansion of its overall installed base. This clubbed with a robust outlook for procedure volume growth will bode well for its stock. But we think the positives are largely priced in for Intuitive Surgical after its 30% rally this year, while Monster Beverage is down 15% despite its efforts to improve margins.

While MNST may outperform ISRG in the next three years, it is helpful to see how Intuitive Surgical’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 7/2/2024
[2] Cumulative total returns since the end of 2016

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