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Beyond Meat: UBS Is Cautious about Rising Competition

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UBS initiated coverage of Beyond Meat (BYND) stock with a “neutral” rating and assigned a price target of $85. According to TheFly, UBS is optimistic about Beyond Meat’s first-mover advantage in the plant-based meat market. However, UBS is concerned about the rising competition for Beyond Meat from players such as Impossible Foods and Kroger (KR).

Beyond Meat faces increased competition

Beyond Meat has entered several partnerships to expand its business. Some of the recent collaborations include prominent players like McDonald’s (MCD), Dunkin’ Brands, Subway, Yum! Brands’ KFC, and Denny’s.

However, competition is increasing in the alternative meat space. Rival Impossible Foods made its debut in grocery stores via its partnership with grocery store chain Gelson’s. Impossible Burger is sold at 27 Gelson’s outlets in Southern California.

According to CNBC, Impossible Foods aims to expand the presence of its plant-based meat Impossible Burgers to grocery stores in every region nationwide by mid-2020. Impossible Foods is also strengthening its business through its partnership with Burger King.

Consumer giants Tyson Foods (TSN), Kellogg (K), and Kroger are also expanding into the alternative meat space. Tyson has rapidly expanded the distribution of its Raised & Rooted plant-based nuggets to over 7,000 stores. It has also expanded the brand into the foodservice channel. Tyson also sells Aidells Whole Blends sausages and meatballs, which are made of chicken and plant-based ingredients.

Kellogg plans to offer Incogmeato plant-based burger patties, chicken tenders, and nuggets in grocery stores and foodservice channels starting in early 2020. Meanwhile, Kroger also offers plant-based items like burger patties and grinds, cookie dough, pasta sauces, and sausages under its Simple Truth brand.

UBS estimates growth through McDonald’s

In September, McDonald’s started offering Beyond Meat’s P.L.T. (plant, lettuce, and tomato) sandwiches with Beyond Meat patties in 28 restaurants in Canada. According to Reuters, a survey by UBS indicates that McDonald’s sells 20–30 plant-based Beyond Meat burgers daily in Canada. It sells about 100 of these burgers in more densely populated areas. UBS estimates that McDonald’s could sell over 250 million P.L.T. burgers annually if it expands this product to its 14,000 US outlets.

UBS estimates that the expansion of the partnership with McDonald’s could add sales of about $325 million to Beyond Meat’s top line. The investment bank also estimates that the partnership with Burger King could contribute $135 million to Impossible Foods’ annual sales.

According to Marketwatch, UBS estimates that Beyond Meat could generate revenue of $1.8 billion by 2025. Currently, analysts expect the company’s revenue to touch $280.3 million in 2019.

Do analysts expect the stock to rise?

Beyond Meat stock has risen 13.5% since its IPO (initial public offering) in May. It fell 22.2% on October 29 after the company’s statements about offering discounts reflected the impact of rising competition. Also, the expiry of the lockup period for investors and shareholders triggered sell-off in the stock.

Beyond Meat reported better-than-expected third-quarter revenue and earnings on October 28. The company’s revenue grew 250% YoY (year-over-year) to $92 million. Its third-quarter EPS of $0.06 made a considerable improvement compared to EPS of -$1.45 in the third quarter of 2018.

About 60% or nine out of 15 analysts have a “hold’ recommendation for Beyond Meat stock. Four analysts rate it as a “buy,” while two analysts have a “sell” rating. Analysts currently see a 47% upside potential in Beyond Meat stock with an average price target of $109.54.

Beyond Meat aims to improve its performance through continued innovation and expansion in additional domestic and international markets.

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