Beyond Meat investors should be realistic
Stock way off July peak, but up from May IPO
• There are plenty of catalysts that can go either way for Beyond Meat Inc. next year. But even if stars align for the plant- based meat maker, Wall Street analysts are unconvinced the stock can repeat its gangbuster performance from 2019.
At US$76 a share, Beyond Meat has rallied more than 200 per cent since its initial public offering in May. Despite losing two- thirds of its value since a peak in late July, the stock ranks among the top 10 best- performing new issues in the U. S. this year, according to data compiled by Bloomberg.
Still, its nearly US$ 5- billion valuation keeps many investors and analysts on the sidelines as competition heats up with rival offerings from Nestle SA, Kellogg Co., Tyson Foods Inc., and others. Its nearest peer, closely held Impossible Foods Inc., has been rolling out its veggie patty in U. S. supermarkets and plans to expand its retail presence in 2020.
“We expect more of the competitive products to be gaining traction both in restaurants and retail,” Bloomberg Intelligence analyst Jennifer Bartashus said in a telephone interview. “We’ll be watching how well Beyond Meat can preserve the inherent first- to- market status” that it held at retail stores, she said.
Shares fell as much as 1.1 per cent on Wednesday, despite news that the parent company of Carl’s Jr. and Hardee’s will expand its partnership with Beyond Meat.
While the company continues to score new deals, investors are waiting to see what happens with the current trials at Mcdonald’s Corp. and Subway Restaurants, and the one- day- only test at KFC over the summer. Will there be national rollouts, or will the “limited time offers” turn out to be just that? A deal with McDonald’s would be a big win, but even that may not be enough to take Beyond Meat back to its summer highs.
“July levels would be tough even with Mcdonald’s,” Oppenheimer & Co. analyst Rupesh Parikh said in a telephone interview. The analyst, who has a market perform rating on the stock, still expects Beyond to post “significant” growth next year, but cautioned that competition concerns could weigh on the stock, which remains “very pricey.”
The US$ 104 average analyst 12- month price target on the stock implies a 37 per cent increase from its current trading price. Even the most bullish estimate of
US$185 would translate into a smaller gain than the 200 per cent rally in 2019.
Details about the McDonald’s test in Canada are scant. While chief executive Ethan Brown said he’s optimistic about the company’s relationship with the fastfood giant, reports about the test have been mixed. Bernstein analyst Alexia Howard wrote last month that the trial “has not been a blowout success thus far.” She estimated a 50 per cent chance of success and projected Beyond Meat’s total sales could grow to US$ 910 million by fiscal 2021 from an estimated US$276 million this year, if a deal in the U. S. materializes.
UBS analyst Steven Strycula estimated a US$ 300 million opportunity for Beyond Meat if Mcdonald’s picks the company as a sole supplier for the plant- based burgers. The analyst wrote last week that surveys indicated the fast- food chain could look at multiple suppliers if it decides to permanently add the item to its menu.
For all the anticipation, Berenberg analyst Donald Mclee cautioned that investors may have to wait a little longer. “That’s something that’s probably a couple of quarters away,” he said by phone.
“From the Mcdonald’s side, there’s a lot of focus on operations and how the impact of adding a new line item to the menu impacts the speed of the drive- thru and the in- store experience,” said Mclee, who has a buy rating on Beyond Meat shares and a price target of US$100.
Another key development analysts are watching is the company’s expansion efforts abroad. El Segundo, Calif.based Beyond Meat derived 18 per cent of its revenue from international markets in the third quarter and is “aggressively” building infrastructure in Europe while also eyeing Asia, Brown said on the earnings call in October.
Unlike Impossible Foods, Beyond has an “international advantage” that is misunderstood by investors, Mclee said. In both Europe and China, Impossible will need government approval for heme, its “magic ingredient” that’s made from genetically modified yeast. Beyond Meat says it’s not using genetically modified ingredients.
Still, despite the advantage, Asia can prove “a bit more challenging,” given the region’s varying palates, Mclee said. China, for example, may have more than a billion mouths to feed, but it also has a very different culinary and social culture where plant- based proteins are nothing new, meat is still very much a status symbol, and environmental concerns have yet to sway consumer behaviour.