Goldman Sachs Lowers Outlook on Monster Beverage, Southwest Airlines Stocks

Put buying has been in high demand for MNST and LUV

by Josh Selway

Published on Mar 20, 2019 at 9:39 AM

Equity analysts at Goldman Sachs this morning lowered their outlooks on the shares of energy drink giant Monster Beverage Corp (NASDAQ:MNST) and travel concern Southwest Airlines Co (NYSE:LUV). The bear notes have both MNST and LUV stocks trading in the red early on today. 

Looking closer at MNST, Goldman downgraded its opinion to "hold" from "buy," removing Monster from its Americas Conviction list. The note also dropped the security's price target to $59 from $67, citing weak domestic sales that will more than offset the company's strong international growth. This comes just one day after Wells Fargo warned about growing competition that could hurt Monster.

The stock is trading down 1.9% at $56.84, extending its pullback from its Feb. 28 high of $66.38 and falling below the 50-day moving average for the first time since mid-January. Such price action is probably serving options traders well, since data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 10-day put/call volume ratio of 4.18, ranking in the 99th annual percentile. In other words, there's been unusual demand for long puts recently.

Meanwhile, LUV shares are 0.5% lower at $50.50, with Goldman dropping its price target to $49 from $54. The brokerage firm expects mechanic union problems and the recent 737 MAX groundings to act as additional headwinds for the company. According to Thomson Reuters Eikon, the $49 price target is the lowest from any covering analyst, and the firm already had the lone "sell" rating on the equity. In fact, a wide majority of analysts recommend buying Southwest.

Put buying at the ISE, CBOE, and PHLX has also been extremely popular on LUV, based on the 10-day put/call volume ratio of 1.74 -- an annual high. Technical traders should be watching the $50 mark closely, as a breach of the half-century mark -- which has momentarily served as a floor -- could signal more weakness ahead for the airline stock.

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