Update HANS: Averaging In to Jan Put Spread, Was Just a Tad too Early

by Dan December 16, 2011 12:33 pm • Commentary

Update Dec 16th 2011 at 12:36pm:  HANS is up more than 4% today on the heels of their Analyst Day yesterday and the buying pressure by index arbs for the Company’s addition to the Nasdaq 100 on tonight’s close.  Checking with a couple index desks I have heard there is probably 1/2 days volume to buy…..With the stocks price action this am there is a good chance that indexers did not wait for the close to buy.

I was obviously one day early, but I am being a little undisciplined here and am averaging into this trade.  I just bought some HANS Jan 85 Puts for 1.05.  SO my avg price on the Jan 85 puts is now about 1.39.  I will look to leg into the spread on the other half of this trade when the stock comes in.

Here is an excerpt from Goldman’s recap note of the HANS Analyst Day in a note today to customers:

What’s changed

We attended HANS analyst meeting in NYC and came away with bolstered confidence in the near- and long-term prospects of “Monster” brand trademark and the energy drink category.

(1) Energy drinks growing share of the LRB profit pool – Energy drink
now garners a 23% of dollar-share of the non-alcoholic ready to drink market
in the C&G channels, second only to carbonated soft drinks. Not only is its
core “green monster” brand steadily gaining share within energy, but
Monster is now starting to expand more meaningfully into new occasions
and to new consumers by penetrating into the adjacent RTD tea and coffee
categories (i.e., Monster Rehab – already the number-one RTD tea brand in
c-stores). We see continued runway for growth for the Monster trademark
given its high share among younger consumer and effective marketing.
(2) Focus on the international “mosaic” – HANS’ “shotgun” approach to
international expansion, i.e., numerous markets entered with widely
varying progress, suggests to us that path to profitability in international
markets is likely to be more gradual in nature. This is not surprising given
the lack of clear precedent to draw on. That said, we believe the strength in
Canada, Mexico, and a developing Europe creates an already attractive
mosaic despite the varying results in specific markets.
(3) Management reaffirms buybacks are the best use of cash – HANS
noted that buybacks were the best use of its cash, but it also indicated that
robust cash levels were needed as it expands into international markets
that may require higher inventories and receivables.

We maintain our 12-month, P/E- and M&A-based price target of $93.


Update Dec 15th 2011 at 1:15pm:  I’d be remiss to leave out that the company is holding an Analyst day in New York at 4:15pm today.

Goldman Sachs in a preview of the event had the following to Say:

We expect management to provide a business update around US sales trends, product innovation, and international expansion, all of which is likely to support investors’ confidence in HANS’ top-line growth prospects.

We continue to expect HANS to show robust sales growth over the next few years (30% in 2011, 17% in 2012 and 12% in 2013). (1) Consistent market share gainer both US and abroad – HANS now holds 32% of the US energy drink market (FDMx + c-stores), continually narrowing the gap with Red Bull (7 pt gap ytd versus 15 pt gap in 2006) through the success of its core Monster Green 16-oz. packaging and product innovation like Monster ReHab and Peace Tea.

Moreover, HANS has expanded 110-120 bp of share in Europe year to date, pulling up its EU sports and energy drink market share to 5.1% in October/November from the 3.6% in 2010. (2) Further upside from the international business? – HANS revealed its plans to enter the Asian markets including South Korea and Japan in 2012.  In turn, we anticipate a further distribution lift in 2012, although the rampup of international profits is likely to be more gradual. (3) Remain Neutral

While we remain optimistic in HANS’ long-term prospects, we wait for a better entry point with the stock trading at 22.9X NTM ex-cash P/E post the 11% rally in the last 12 trading sessions.

We retain our 85% P/E- and 15% M&A-based 12-month price target of $93.


New Trade Dec 15th, 2011:  Not very original here, but I am one for two in the last 2 months on put spreads in this name, I took the proceeds of  a winning Nov 85/75 Put Spread and rolled out to Dec 85/80 Put Spread which as of this moment is practically worthless (but a girl can still hope can’t she?? remember the early week heroics of GMCR).  But I am not done with this one yet!

With stocks like GMCR, LULU, AMZN, WYNN, FSLR, BIDU, FSLR, SINA, NFLX and now DECK imploding on the weight of silly valuations, I want to press HANS as I feel it will be next in line for a drubbing…….The chart below shows how GMCR, LULU, DECK and HANS were all clustered together near their highs back in Sept even when the market was careening lower……Since then GMCR, LULU and DECK have broken down a bit and are well off of their highs…..I believe it is just a matter of time before they get too HANS (orange line).

1 yr GMCR, DECK, LULU & HANS chart from Bloomberg

So here’s the new trade:

HANS trades at 30x next years consensus earnigns estimates, while eps and sales are only expected to grown 20% and 15% respectively.  The stock is priced for perfection and any little hiccup on the fundamental front will cause investors to head for the door as they appear to be doing with some of the other consumer high-fliers.

As many of you know I don’t short stocks on valuation alone, but given the price action in the space I think  this chart is telling you all you need to know, if it breaks that trendline on volume the stock is likely go straight to its 200 day moving average around $77, and at that point watch out below.

[caption id="attachment_7190" align="aligncenter" width="300" caption="1 Yrd HANS chart from Bloomberg"][/caption]


New TRADE:  HANS ($92) Bought Jan 85/75 Put Spread for 1.30

-Bought 1 Jan 85 Put for 1.78

-Sold 1 Jan 75 Put at .48

Break-Even On Jan Expiration:

Profits btwn 83.70 and 75.00 make up to 8.70, with max gain of 8.70 at 75.00 or below.

Losses btwn 83.70 and 85 lose up to 1.30, with max loss of 1.30 at 85.00 or higher.


New Thoughts Nov 21st, 2011: Fundamentally I have zero edge when it comes to this company, All I know is that the price action doesn’t make sense to me and given some of the weakness of late in some other once cult stocks like GMCR, NFLX , AMZN and CRM I want get short exposure to this stock again.

Technically the stock looks vulnerable sitting right on a massive trend-line that has seen the stock rise 70% ytd and only down about 8.5% from the all time highs made earlier in the month.

1 Yr


Now normally I don’t like to press down openings, but this stock shows unusual relative strength only down 2.4% this morning.  

TRADE: HANS (88.75) Bought Dec 85/80 Put Spread for 1.30

-Bought Dec 85 Put for 2.60

-Sold Dec 80 Put at 1.30

Break-Even On Dec Expiration:

Profits btwn 83.70 and 80.00 make up to 3.70 , max gain at 80 or below down about 8% make full 3.70

Losses btwn 83.70 and 85 lose up to 1.30 and lose all 1.30 85 or higher.

* as I always I used a limit order as the bid ask is wide in this name, got filled .10 inside the offer.

3rd Update Nov3rd 2011 at 1:40pm: HANS reports Q3 earnings tonight after the close.  The options market is implying about an 8.5% move vs the 4 qtr average move of about 5.5%.    Last week I sold half of my position for a 1.75 gain….now I am going to close out the other half at 2.10 with the stock at 89.15 (gain of .25 on the second half of the position).  I am closing the balance because at this point I have not particular insight whether the company will miss or beat and the purpose of the trade was to play overly positive sentiment….and it worked.  I see no reason to risk the remaining capital I have committed to the trade for something (earnings) that I have no edge as to what they will report.


2nd Update Oct 25th 2:44pm:  With the stock down 7.5% today at ~$85 without any news, I am going to sell half the spread I bought last week for 1.85 at 3.60 for a 1.75 gain, taking most of my cost off of the table….going to let the other half ride…..

Update Oct 20th 2011: This morning I started legging into a Put SPread in Nov in HANS…..  I Bought the Nov 85 put for 3.10 when stock was ~92 now with the stock around 91 I am selling the Nov 75 Put against it at 1.25….now I have the NOV 85/75 Put Spread on for 1.85 and that is my Max Loss……

TRADE: HANS (~$91.50) Bought Nov 85/75 Put Spread for 1.85

Bought Nov 85 Put for 3.10

Sold Nov 75 Put at 1.25

Break-Even On Nov Expiration:

Profits btwn 83.15 and 75 make up to 8.15 at 75 make full 8.15

Loses btwn 83.15 and 85 up to 1.85 and above 85 lose full 1.85 in premium….

2nd Update Oct 20th 2011: With the stock at 92.00 I am rolling this position out, I am buying the [private] NOV 85 Puts for 3.10…..Earnings will fall in Nov expiration….I think this stock will go the way of GMCR and I any chinks in the armor that arise from their earnings call could be the start of a fabulous trade…..I will look to leg into a put spread when this stocks starts coming down to earth……

Update Oct 4th 2011: I sold half of this spread at 1.75, paid 1.00 (read here)

Original Post Sept 29th 2011: I Am Washing my “HANS” of This Consumer Discretionary Name

Looking at the damage done today in consumer names today I am actively looking for those that haven’t broken yet…..This action is downright disgusting; LULU -5%, CMG -4%, COH -8%, TIF -9%, ANF -6% , GMCR -11%, AMZN -5%.  Others will certainly play catch up.  

HANS sticks out to me as a name that could see some downside in a market like this….Chart below shows the massive divergence between HANS and the SPX… something has to give here….

[caption id="attachment_5077" align="aligncenter" width="300" caption="SPX vs HANS 1 yr chart from Bloomberg"][/caption]

TRADE: HANS $87.20 I just Bought the OCT 80/75 Put Spread for 1.00

-Bought 1 Oct 80 Put for 2.05

-Sold 1 Oct 75 Put at 1.05

Break-Even on OCT exp: 

Profits btwn 79 and 75 make up to 4.00, below 75 make 4…

Losses btwn 79 and 80 lose up to 1.00, above 80 lose 1.00

TRADE RATIONALE: This trade is not high conviction as I don;t have a great handle on the fundamentals, I know it trades at a rich valuation to it’s peers….but I guess the chart and its relative performance of late is enough for me to dedicate a small amount of $ to short term trade…..I am risking what I am willing to lose….Generally I don’t want to press shorts after a sell off like we have seen in the last couple days….but if we make a new closing low in the coming week, nothing will be spared and names like this should get destroyed as evidenced by the price action of some of its peers today.