The stock is down 15% since Jan 2009 while the S&P 500 is down by 3% during the same time period; Hansen Natural ( ) had outperformed the S&P by a wide margin up until the first week of June.

When the markets start rebounding this stock is expected to outperform S&P by a wide margin

Portfolio Suitability

Low correlation to every sector;

JFCG Valuation Model

• Value of $33/share vs. last closing price of $28.57; undervalued by 15.5%
•  Has shown consistent improvements in net margins from 3.3% in 2001 to expected 18% in 2009
•  At a stock price of $28.57 and 2009 expected EPS of $2.26, it is trading at a 2009 PE of 12.6; to be on the safe side we assume it won’t meet analyst expectations of a EPS of $2.26 in 2009 and reduce that by 25% to $1.69. At a 15 multiple of $1.689 it should bottom out at $25.5.

Consensus EPS Estimate

Stock price has tanked since the first week of June, however, consensus estimates on June 17, 09 haven’t changed much

Sensitivity and Scenario Analysis

Each percentage point of CAGR Revenues is equal to ~ $1.4 in intrinsic value

Each percentage point of Net Profit Margin is equal to ~ $1.4 in intrinsic value

Industry Analysis

• Branding and Distribution are key competitive advantages; difficult for new entrants to gain market share
  • Hansen has created a strong brand (Monster)
  •  Distribution contracts with major Coke and Bud distributors in US as well as six European countries
•  Consumers are price inelastic between different brands
  •  Firms don’t compete on price 
•  Consumers are addicted to a certain extent to particular energy drinks since they provide a quick boost in energy levels
  •  Psychological barriers to switching brands; according to a recent Nielsen survey,  consumers buy caffeine drinks in auto-pilot mode and are hesitant about changing brands
  •  Coffee gives bad breadth and brown teeth; energy drinks avoid such problems and have no taste memory
•  Business model has high operational leverage
  •  Incumbents can leverage economies of scale

Industry Fragmentation and Consolidation

• Soft drink market has traditionally been an oligopoly between Coke and Pepsi
• Energy drink market is too fragmented and consolidation is highly likely

• On Oct 6, 2008 Coke agreed to distributing Monster in US and six other European countries; could acquire Monster if Full-Throttle continues to lose market share
•  Monster has had some distribution issues channel change issues in Q1 09, but that shouldn’t be a problem in the later half of 2009

HANS Firing on All Cylinders

• In Oct 2008, Coke agreed to distribute Monster in six nations (UK, France, Netherlands, Belgium, Luxembourg, Monaco) which adds a population of 153 million as its potential customers vs. 300 million current US customers;  since then, the stock has fallen 27% in sympathy with the broader market
• These new markets could also help Monster mitigate a slowdown in the US markets
• Monster is unfazed by the credit crisis and continues its expansion plans to build a global brand
• HANS has increased its gross margin per can even in a high commodity price environment; the current fall in commodity prices could increase margins

Balance Sheet

• Hansen can afford to take risks of new ventures and distribution agreements since its cash level is close to historical highs
• Strong Balance sheet to not only weather the downturn but capture market share from weaker competitors

Some Questions

Is there a possibility of a steep decline in HANS stock price if the economy declines further?

• We are already factoring in a recession and are buying this stock at a steep discount
•  HANS expanded distribution to six more countries in Europe and changed distributors in US to Coke for 20 regions

 How do commodity prices affect HANS?

• The current decline in commodity prices will help boost Hansen’s bottom-line

Conclusion

• Sustainable proven business model with good competitive advantages
• Stable and strong management which is steadily building distributors around the world and expanding even in such difficult economy
• HANS is debt free and grows from operating cash flow; so it can continue on growth trajectory
• Officers and directors own 21% of the company
• Not a single insider sell trade (planned or unplanned) in the last two years below $27