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Shares of Monster Beverage rose nearly 3 percent Tuesday after an analyst upgrading his rating, saying that regulatory concerns are overstated.
THE SPARK: Mark Astrachan of Stifel Nicolaus raised Monster Beverage Corp.'s rating to "Buy" from "Hold" and set a $65 price target for the energy drink maker.
THE BACKGROUND: The Food and Drug Administration in late November informed Sens. Dick Durbin and Richard Blumenthal, who had requested that the agency look further into the health impact of energy drinks, that it was studying the beverages.
The FDA said it was looking to see if the drinks posed a risk when consumed by "vulnerable groups" such as young people, or in excess — but it did not indicate that any immediate action would be taken against the drinks makers. The letter also said there is no scientific literature that calls into question the safety of taurine and guarana, two ingredients often used in energy drinks.
Investors had been selling off Monster shares based on concerns that regulators would crack down on energy drinks makers after a spate of reports and lawsuits alleged the highly-caffeinated products were tied to deaths.
Monster has repeatedly said its drinks are safe and it does not know of any fatalities caused by its products. Its drinks are not recommended for children and people who are sensitive to caffeine. Monster says its drinks generally contain about 10 milligrams of caffeine per ounce — about half the amount in coffee.
THE ANALYSIS: On Tuesday Astrachan said in a client note that an examination of FDA incident reports for major beverage brands shows that the reports are "more widespread and less meaningful in proving product safety than portrayed in recent press reports highlighting deaths loosely tied to energy drinks."
The analyst said that the incident reports can be filed by anyone and don't need to be verified. He also noted that while Monster had the second-highest percentage of incident reports citing life threatening conditions or death — 26 percent — it had the third-lowest total reports, at 35. This is compared with more than 8 billion cans of Monster sold, Astrachan said.
SHARE ACTION: Monster Beverage's stock gained $1.14, or 2.2 percent, to $54.98 in late morning trading, after spiking as high as $55.16 earlier in the session. The shares have traded between $39.99 and $83.96 over the last year, and started the day up about 15 percent since the start of 2012.