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Hey David,

Wondering what your thoughts are to this analysis:

With Hansen Natural's stock down about 44% from its highs a few months back, the stock would appear to be cheap. So if you're the management team at Coke and you've been thinking about buying Hansen, now would seem like a good time to pull the trigger on a deal. Obvious... right?

Well maybe not. Hansen's Monster line of energy drinks is the jewel in the company's product portfolio and there are reasons for concern. First, margins are suspect as Monster might not be able to sustain its pricing advantage in the face of ever increasing competition. Then there's lackluster performance of its coffee energy drinks. Java Monster has been anything but a monster and with the costs of coffee and dairy products rising rapidly margins are almost sure to be squeezed in the quarters to come. Toss in management's decision to expand the coffee-type offerings and it's not hard to see growth slowing down the road.

That's not to say that Hansen won't enjoy a decent year. Bolstered by new distribution deals with Anheuser-Busch and Pepsico of Canada, analysts still see earnings growing by 40% in 2008 with a 32% jump in sales. Then again, Hansen hasn't been very good at meeting its targets in recent quarters and nothing sends a stock down faster than underperforming expectations. With margins at risk, another profit miss is not only possible but probable.

Could Coke come in and save the day? It's possible but it's also very possible that the rumor of a takeover will persist for another year or more. Hansen is at its lows for a reason. There's trouble brewing behind the headlines and the apparently cheap valuations. If I'm Coke's management team, I'm waiting to buy Hansen until the company is cheaper still -- like below $30 per share.
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