Shares of Monster Beverage Corp. soared as concerns eased about increased regulation for the energy drink maker following a letter, made public Tuesday, from the U.S. Food and Drug Administration.
THE SPARK: The letter, sent earlier this month, said that the FDA was studying energy drinks to see if they 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.
The letter was sent to Sens. Dick Durbin and Richard Blumenthal, who had requested that the agency look further into the health impact of energy drinks.
THE BIG PICTURE: Investors have sold off Monster shares based on concerns that regulators would crack down on energy drinks makers after a spate of reports and lawsuits alleged that the highly-caffeinated products are 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: Goldman Sachs analyst Judy Hong said the FDA's response makes her think that she's right in predicting that the agency's study will not result in regulation that hurts Monster's finances. The most likely outcome would be requirements for increased disclosure of possible risks and stronger labels on energy drinks, which she said would not significantly affect Monster's business.
"At this point, the FDA has little reason to think energy drinks are unsafe when used in a responsible manner," she said in a note Tuesday.
SHARE ACTION: Up $6.60, or 14 percent, to $52.47. Shares have lost nearly half their value since this spring.