Beyond Meat & Pizza Hut: Will plant-based pepperoni deliver for investors?

Despite a strong start to 2021 that saw Beyond Meat’s [BYND] share price reach an intraday high of $203.44 on 27 January before closing at $192.08, up 53.66% year-to-date, the stock has struggled much of this year.

Following the January peak, Beyond Meat’s share price fell 12.97% within a week, closing at $167.16 on 2 February, which marked the beginning of a downward trend that would culminate in a low of $99.86, down 18.78% year-to-date. Although Beyond Meat’s share price initially bounced back, closing at a post-slump high of $157.49 on 30 June, the stock has since fallen back into the red. As of its 17 August close of $117.70, Beyond Meat’s share price was down over 4% year-to-date.

On the other hand, Pizza Hut’s parent company Yum! Brands’ [YUM] share price has had a very different run. Despite a relatively slow start to the year, Yum! stock started to show positive signs when it closed at $110.56 on 17 March, up 2.8% year-to-date and the first time it managed to surpass the $110 mark in 2021. From there, the stock continued to grow, closing at a peak value of $121.41 on 10 May, up 12.3% year-to-date.

Although the stock took a slight tumble over the following weeks, closing at $125.52 on 19 July, Yum! Brands’ share price went on from there to rally up 7.8% to close at $134.92 on 17 August — its highest ever close.

Now, as the partnership between the two food brands heats up, how will the markets react?

The future of fast food?

Having been officially announced in February, the partnership between Yum! Brands and Beyond Meat is still fairly fresh, but the companies have wasted no time in creating new products as part of their joint venture.

A recent announcement states that Pizza Hut US will be trialling meat-free pepperoni in 70 locations in five cities across the country. Meanwhile in the UK meat-free toppings were added permanently to the menu in July following a successful trial in November 2020. 

Following the announcement Beyond Meat’s chief innovation officer, Dariush Ajami, said: “We know there is strong consumer demand for pepperoni, and we’re thrilled to unveil a game-changing plant-based pepperoni topping as the next chapter in our innovation-focused partnership with Pizza Hut.”

Yum! Brands on the other hand sees the relationship as an opportunity to attract more customers. “Today’s announcement builds on our strong relationship with Beyond Meat and, given the consumer response during recent tests with Beyond Meat, we’re excited about the long-term potential plant-based protein menu items have to attract more customers to our brands, especially younger consumers,” said Yum! Brands’ CFO, Chris Turner had said in February.

“Today’s announcement builds on our strong relationship with Beyond Meat and, given the consumer response during recent tests with Beyond Meat, we’re excited about the long-term potential plant-based protein menu items have to attract more customers to our brands, especially younger consumers” - Yum! Brands’ CFO, Chris Turner

Looking ahead, Beyond Meat’s founder, president and CEO, Ethan Brown, believes that meat alternatives are the future. During the second-quarter earnings call, he said that the three pillars of Beyond Meat’s long-term growth are “taste, health and cost”. He added: “As I've noted, it is my belief that [it’ll] be a rare consumer who rejects a product that is truly indistinguishable from, healthier than and below the price of its animal protein equivalent.”

Brown’s beliefs align with a report published in February by market research firm Million Insights, which claims that the plant-based meat market will be worth $13.8bn by 2027. But what would this mean for the companies’ future share price performance?

Looking beyond the pandemic

While Beyond Meat and Yum! Brands look well-positioned to benefit from the increasing popularity of plant-based diets, Piper Sandler analyst Michael Lavery believes that increased investment spending will weigh on the company’s margins, despite earnings before interest, taxes, depreciation and amortisation (EBITDA) beating his expectations.

However, others have a more bullish outlook, including Bernstein analyst Alexia Howard, who gave the stock a ‘double upgrade’ back in May after changing its rating from ‘underperform’ to ‘outperform’. Howard increased the price target from $101 to $130. Despite a difficult 2020, which caused many restaurant closures that drained Beyond Meat’s foodservice revenues, the company is not a “broken growth story” said the Bernstein report.

The comments echo those of Stephens analyst Mark Connelly, who said in March that “competition in alt protein is heating up and is coming from well-established food companies. Yet Beyond Meat is one of only two companies that we think will define the high end of the market."

Yum! Brands also has a few bulls following the stock as Argus analyst John Staszak raised the firm’s price target from $135 to $145 while maintaining a ‘buy’ rating. According to The Fly, the analyst’s positive outlook is as a result of its “diverse brands, prospects for higher same-store sales, global operations and asset-light business model.”