Plant-based meat substitute group Beyond Meat’s [BYND] share price closed last week at $96.07, up 29% from Monday’s closing price of $74.59, following a Reuters report that its rival, Impossible Foods, was no longer pursuing a supply partnership with McDonald’s [MCD].
In an interview with the news publication, Impossible chief executive Pat Brown said it would need to scale up production before pursuing such a large distribution deal. However, an Impossible spokesperson later said these comments were misinterpreted, stating that its “ambition is to be everywhere. We would never abandon a relationship.”
Alongside this, an announcement from McDonald’s that it was doubling the size of its trial of a Beyond Meat P.L.T (plant, lettuce and tomato) burger to 52 Canadian outlets was enough to send investors snapping up shares in Beyond Meat – although even at its current peak, the price is still far below its July 2019 all-time-high of $234.9 after it floated at $25 back in May.
Bringing home the (plant-based) bacon
Investors believe Beyond Meat has now secured its position as a market leader, confirmed by its wider supply chain and distribution deals with not just McDonald’s but other fast-food and restaurant outlets such as Dunkin’ Brands and KFC.
Analyst Alexia Howard of AB Bernstein believes a broader McDonald’s partnership in Canada and the US could boost Beyond’s annual sales figure to $910m in 2021 from $280m in fiscal 2019 and see its share price keep rising to between $105 and $130 per share.
However, she added that a McDonald’s tie-up was far from given. “It seems that the trial has not been a blowout success thus far that justifies an immediate national rollout,” she said.
This raises questions of both demand and whether Beyond is in a similar pickle to Impossible, in that it does not yet have the production capacity to supply thousands of McDonald’s sites.
“If McDonald's decides to roll out the Beyond P.L.T., we believe that Beyond Meat may need to roll out on a regional basis at first and will likely be in a good position to fully supply McDonald's nationwide in a year to 18 months,” Howard added.
“If McDonald's decides to roll out the Beyond P.L.T., we believe that Beyond Meat may need to roll out on a regional basis at first and will likely be in a good position to fully supply McDonald's nationwide in a year to 18 months” - Analyst Alexia Howard
Beyond Meat: a long-term play?
Other analysts remain cautious about Beyond Meat’s long-term potential. Those polled by MarketScreener gave a mean consensus of hold and an average target price of $101.86.
That’s a hangover from the large drop the company’s stock has experienced since last Summer on concerns that it could suffer as bigger, more established brands including Kellogg and Nestle bring out rival plant-based products.
Some analysts are suggesting that traders view Beyond Meat as a long-term play, rather than trying to guess which way the share price will go in the short term.
“[Beyond Meat’s] stock has been pretty much sideways over the last few months. It’s still a relatively new issue and anytime we start to see new news come into play, we typically see a pretty volatile reaction,” said JC O’Hara, chief market technician at MKM Partners.
Danielle Shay, director of options at Simpler Trading, agreed: “It’s incredibly volatile especially in the short-term and I love to trade it in the options market when there’s a potential short squeeze. However, long-term they have huge potential. It’s healthier, you can have a smaller ecological footprint and in the long-term, I’m bullish on the stock.”
“It’s incredibly volatile especially in the short-term and I love to trade it in the options market when there’s a potential short squeeze. However, long-term they have huge potential. It’s healthier, you can have a smaller ecological footprint and in the long-term, I’m bullish on the stock” - director of options at Simpler Trading, Danielle Shay
These consumer tailwinds of sustainability and increased interest in (and demand for) vegan products are expected to help Beyond Meat post a 150% leap in fourth-quarter sales when it reports next month. There are expectations of an annual profit in 2020 and eventually – according to Luke Lango of Investor Place - a market cap that “rivals the biggest meat companies in the world”.
|Return on Equity (TTM)||-9.47%|
|Quarterly Revenue Growth (YoY)||250.00%|
Beyond Meat share price vitals, Yahoo Finance, 13 January 2020
What about Impossible?
Although Beyond Meat has heavier brand equity and name recognition in the sector, investors shouldn’t give up on the Impossible story either given expected long-term market fundamentals.
Market research firm CFRA forecasts that the global alternative meat industry will grow to $100bn in sales by 2030, up from about $19bn in 2018.
Although not the same size of a global McDonald’s deal, Impossible has an existing partnership with Burger King in the shape of its Impossible Whopper. There has been much market talk of an Impossible IPO this year at a market value of $5bn with Stephen Karmazyn writing in Profit Confidential that it would be the “best tech IPO” of 2020.
There is plenty of the plant-based meat pie to go around for investors it seems, but the market players need to solve the pressing issue of upping capacity to meet demand. If they can do it before the bigger firms press further into this space, then the routes to stellar growth are open.