Plant-based food producer Beyond Meat (BYND) is set to release its third-quarter earnings results on October 29. Wall Street will be closely watching Beyond Meat’s earnings for clues on its revenue growth and profitability.
Beyond Meat went public in May at $25, rising 163% on its debut day. The stock continued its dream run, rising to $234.9 on July 26. However, rising competition and rationalization in its valuation have affected the stock lately. It lost 14.7% in August and 11.3% in September. The fall has accelerated in October. Until yesterday, the stock had lost 31.6% this month so far. Yesterday, Beyond Meat stock closed at $101.7.
Beyond Meat earnings: What does Wall Street expect?
Wall Street expects Beyond Meat to report $82.2 million in revenue in the third quarter, a 22% increase over the second quarter of 2019. The company is expected to report a small net income of $2.5 million during the quarter. Beyond Meat’s EPS are expected to be $0.03 in the third quarter. The company is expected to keep burning cash in the quarter. Its cash balances are expected to be $266 million as of September 30, 2019.
Beyond Meat: Recommendations and valuation
Of the 12 analysts surveyed by Reuters, only two call BYND a “buy.” Eight of the remaining analysts are cautious on the stock, recommending “holds.” Over the past month, the average BYND price target has fallen more than $35 to $148.5. The median BYND price target has fallen over $40 to $133 during the same period.
Beyond Meat’s October 24 close puts its market cap at $6.12 billion. At over 23x BYND’s projected 2019 revenue, its valuation looks rich.
Eyes on revenue growth as competition heats up
Beyond Meat is a front-runner in a fast-growing industry. However, this industry is still in its nascency. The competition in the plant-based protein segment is rising. This week, Yum! Brands’ (YUM) Pizza Hut tested a plant-based sausage pizza topping made by the Kellogg Company’s (K) Incogmeato brand. Having a vegan protein option on its menu will give Pizza Hut an edge over other quick-service pizza rivals such as Domino’s (DPZ) and Papa John’s (PZZA). Yesterday, Fox News reported that Domino’s had served ham topping to a vegan customer. Kellogg’s Incogmeato has also started selling ready-to-cook fake meat.
Another rival, Impossible Foods, is also giving BYND a run for its money. This week, Impossible Foods sought approval from EU authorities to sell its products in Europe. Burger King launched the Impossible Whopper nationally in partnership with Impossible Foods. Beyond Meat aims to start production in Europe next year. Other big players such as Nestlé and Tyson Foods are also in the running to capture a share of the fake-meat market.
In such a competitive scenario, the market will be eyeing revenue growth. In the second quarter, Beyond Meat surprised the market with higher-than-expected revenue. Let’s see if the company can keep up the pace.
Partnerships, partnerships, partnerships!
To achieve revenue growth, Beyond Meat needs to find big names it can sell its products to. This week, Dunkin’ Brands (DNKN) announced that it would be rolling out the Beyond Sausage sandwich in 9,000 of its stores. Dunkin’s Beyond Sausage sandwich will go national on November 6. In July, it rolled the sandwich out in Dunkin’ Manhattan stores for testing.
Beyond Meat needs more such partnerships to justify its valuation. Beyond already has some high-profile partnerships. Yum! Brands’ KFC is testing Beyond Fried Chicken in Atlanta. Subway launched the Beyond Meatball Marinara sub last month at 685 locations. McDonald’s Canada is selling burgers with Beyond Meat patties in 28 locations.
However, the company’s partnership with Tim Hortons hasn’t materialized as expected. Tim Hortons took Beyond Meat products off the menu in all provinces except Ontario and British Columbia last month. Beyond Meat needs solid full-scale partnerships like its deal with Dunkin’ to ward off the competition. Markets will be looking for cues on its earnings call regarding the same.