Beyond Meat Stock: Goldman Sachs Turns Bearish

Beyond Meat (NASDAQ:BYND) stock fell 2.6% on March 26. Goldman Sachs downgraded its rating for the alternative-meat maker. Meanwhile, the broader market rose on Thursday. The Senate passed a $2 trillion economic stimulus bill to combat the impact of the coronavirus pandemic. The S&P 500 rose 6.2%, while Dow Jones rose 6.4% on Thursday.

Goldman Sachs downgraded Beyond Meat to “sell” from “neutral.” The firm drastically cut the target price for the stock to $39 from $129. Goldman Sachs thinks that the company will be impacted significantly by foodservice channels shutting down due to the coronavirus outbreak. The firm also thinks that investors won’t pay a premium valuation for the stock amid the current crisis.

How much does Beyond Meat rely on foodservice channels?

On March 19, Bank of America downgraded Beyond Meat’s rating to “underperform” from “neutral.” The firm also cut the target price to $50 from $126. Bank of America cited major exposure to the foodservice sector and the stock’s premium valuation as the reasons for the downgrade. Major restaurant chains have shut down in the US to curb the spread of the coronavirus. The shutdown will likely hit Beyond Meat significantly. The company had 51% exposure to restaurant and foodservice channels in 2019.

In 2019, Beyond Meat’s net revenue grew about 239% to $297.9 million due to strong volumes in the fresh platform across the retail as well as restaurant and foodservice channels. Notably, the retail channel revenue rose 185% to $144.8 million, while the restaurant and foodservice channel revenue grew 312% to $153.1 million.

With a major chunk of Beyond Meat’s revenues relying on the foodservice channel, investors are worried that the coronavirus shutdown might have a fatal impact on the company. Also, the lockdown in other countries will likely impact the company’s international expansion plans.

Analysts’ ratings

As of March 26, ten out of 18 analysts rate Beyond Meat as a “hold.” Meanwhile, four analysts recommend a “buy,” while four recommend a “sell.” In the past, investors were concerned about growing rivalry in the alternative meat space.

In February, Impossible Foods partnered with Disney to offer faux meat for its theme parks and cruise lines. Tyson Foods (NYSE:TSN), Nestle, The Kellogg Company (NYSE:K), Hormel Foods, Kroger, and Cargill have all been expanding in the alternative meat market. Tyson Foods launched its Raised & Rooted plant-based meat products last year. After receiving a positive response to the Raised & Roosted brand, Tyson Foods wants to build a plant-based protein product portfolio through different brands and channels. Kellogg will compete with Beyond Meat through its Incogmeato burger patties, plant-based Italian Sausage, and bratwurst. Kellogg plans a nationwide launch of these products this year.

Beyond Meat’s growth rate might slow down significantly this year due to the coronavirus crisis and rising competition. The company has been trying to fight the growing rivalry through several strategic deals. The company has key collaborations with Subway, Starbucks (NASDAQ:SBUX), Yum Brands’ KFC, and McDonald’s (NYSE:MCD). McDonald’s has been testing the “P.L.T. burger” plant-based burger with a Beyond Meat patty. The company has been testing the burger at certain restaurants in Southwestern Ontario, Canada.

In late February, the company announced that Starbucks would launch the Beyond Meat Cheddar and Egg Sandwich as a core menu item across its chain in Canada on March 3.

Currently, analysts’ average 12-month target price of $91.45 for Beyond Meat stock reflects an upside of 29%. As of Thursday, the stock has fallen 6.0% year-to-date.