Getting back into HANS

by James & Miel on October 12, 2007 · 0 comments

Hello All,

If you’re a long term reader of DINKs finance, you know that we’ve been investors in the Hansen’s Natural Corporation. We invested nearly $60,000 back in April of 06 and walked away with a 50% pretax profit. I’ve been keeping an eye on the stock ever since, and it looks like the company’s share price is picking up again after getting hammered back in August.

Hansens Natural is beverage company. They make and sell energy drinks, sodas, juice and tea. The principle players in Hansen’s management are Rodney Sacks, a South African attorney turned entrepreneur and Hilton H. Scholossberg, an English businessman. The company is based on Corona California and is known primarily for its Monster and Hansens Natural Soda products.

Now, why invest in Hansens? The company has some significant downsides. For example, the beverage industry is very competitive, with Coke, Pepsi and Cadbury Schweppes having large market shares. Also, most of Hansen’s profits are due to their energy drinks, so Hansens is a ‘one trick pony’. There has been some issues with options accounting in the past, primarily due to management helping themselves to profits a bit too aggressively. Finally, a raft of lawyers have recently been sniffing around Hansens looking for some profit because of the options scandal.

But, for an investor thinking about Hansens there are significant draws to investing. First, is profits. Sacks and Schlossberg have done a yeoman’s job of negotiating distribution deals with large partners like Anheuser Busch and Canada Pepsico. The result of this has been the seizure of 27% the energy drink market and growth in earnings per share from $.99 to $1.52 in 2007, despite a 4 way stock split. Hansens currently carries no long term debt.

The second draw is share price. The market has a schizophrenic relationship with the price of Hansen’s shares. Mostly however, the value of Hansens shares on the open market has increased from 3 dollars in 2003 to 64 dollars today. In other words, the value of the company increased by more than 2,100 percent since 2003. After a bit of a fall in the end of 2006, Hansen’s shares have started to pick up again. This suggests that the company’s profitability has increased and the buyers expectations of future profits are reflected in their willingness to acquire shares of the stocks. In other words, the market likes Hansens again.

Third, the smart money seems to like Hansen’s again also. Gregory Badishkanian, a Citigroup analyst who I think is clever guy, has recently revised his earning and price estimates upward. The most recent S&P report suggests that the 2008 outlook for the beverage industry is solid, despite higher sugar and aluminum prices. Also, while I’m not exactly “smart money”, I see that Hansen’s products are on the shelves in DC and at least appear modestly popular at the University of Maryland College Park.

In conclusion, I’m planning on taking a modest position in Hansens. There are still significant downside risks, but the company’s profitability and popularity appear to have returned.

Best,

James



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