Shares of Monster Beverage (MNST) are sliding following the company’s quarterly report, along with which the company revealed an energy drink dispute with Coca-Cola (KO). This morning, Morgan Stanley analyst Dara Mohsenian downgraded Monster to Equal Weight, citing possible Coke competition, while his peer at Stifel reiterated a Buy rating on the stock and recommended buying the shares on any Coca-Cola energy-related weakness.

QUARTERLY RESULTS: Last night, Monster Beverage reported third-quarter earnings per share of 50c and revenue of $1.02B, both above consensus of 46c and $987.92M, respectively. During the company’s earnings conference call, CEO Rodney Sacks addressed an aspect of its agreements with Coca-Cola, stating that “among other provisions, these agreements between the company, Coca-Cola and certain affiliates restrict Coca-Cola from competing in the energy drink category with certain exceptions.” The CEO went on to state: “As some of you may have read, Coca-Cola has developed two energy products it believes it may market under an exception related to the Coca-Cola brand. We believe that the exception does not apply. While mutual agreement to obtain clarification, the issue was submitted to arbitration last week on October 31, 2018. Coca-Cola has indicated that it has suspended the proposed launch of such energy products until April 2019.”

MORGAN STANLEY MOVING TO SIDELINES: In a research note to investors, Morgan Stanley’s Mohsenian downgraded Monster Beverage to Equal Weight from Overweight after the company’s reveal that Coca-Cola has developed two energy products it believes it can market under exceptions with its non-compete restrictions with Monster. While Coca-Cola has delayed the test launch until 2019, pending arbitration, Mohsenian pointed out that if the launch did occur, it would be a competitive threat to Monster. The analyst also argued that a Coke launch of an energy product, while confirming its interest in the category, would lower Monster’s strategic potential. A smaller U.S. competitor, Bang, has already increased its recent share in the U.S. energy drink category to about 3.6% in the latest week in U.S. scanner data from 0.4% at the end of 2017, which creates competitive risk in the country on top of any Coke efforts, he contended. Lastly, Mohsenian highlighted that Monster distributes through the Coke distribution system globally in almost all markets, thus problems in the relationship could impact results. The analyst also lowered his price target on Monster shares to $57 from $69. Also voicing concern over potential competition from Coca-Cola, Susquehanna analyst Pablo Zuanic told investors that a budding conflict with Coke could call into question Monster’s ability to grow and will be an overhang on the stock. While reiterating a Negative rating on Monster, the analyst raised his price target on the shares to $46 from $44 following the “solid” third-quarter earnings.