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Is Beyond Meat a ‘Buy’ after Its Recent Pullback?

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  • Beyond Meat (NASDAQ:BYND) reported an impressive first-quarter performance.
  • Continued product innovation and new partnerships provide strong growth potential.
  • Analysts have raised their target prices after the company’s impressive first-quarter performance.
  • Beyond Meat’s valuation multiple looks expensive.
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Beyond Meat’s Q1 performance

For the quarter ended on March 28, Beyond Meat beat analysts’ revenue, adjusted EBITDA, and EPS expectations. Driven by growth in both retail and foodservice segments, the company reported YoY revenue growth of 141.4%. For the quarter, the company’s retail sales grew by 185%, while its foodservice sales increased by 100%.

Amid COVID-19, customers increased their stockpilings, which drove the company’s retail sales. However, restaurant closures in March due to social distancing guidelines had a negative impact on the company’s foodservice sales. The company’s management stated that its YoY sales growth in the foodservice segment was largely due to an increased number of foodservice outlets that served Beyond Meat’s products. On a regional front, the company’s domestic sales grew by 156%, while its international sales grew by 106%. The company’s international sales formed 25% of its sales compared to 30% in the first quarter of 2019.

In the first quarter, Beyond Meat’s gross margin improved by 12.0% to 38.8%. A higher sales volume, a better production yield, cost savings in material and packaging costs, and improved labor expenses drove the company’s gross margins. Meanwhile, the company’s operating costs also declined from 40% to 37%. So, the revenue growth, expanded gross margin, and lower operating expenses drove the company’s net income and EPS. For the quarter, the company reported a EPS of $0.03 compared to a net loss of $0.95 per share.

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Growth potential

Beyond Meat continues to focus on product innovation. The company has forged new partnerships and expanded its distribution points to drive its sales. The company launched its Beyond Breakfast Sausage in March. The sausage contains 11 grams of protein per serving, 50% less fat, and 33% fewer calories compared to the pork sausage patties from a leading brand. The company also claims that the sausage is free of GMOs, soy, gluten, and artificially produced ingredients. The company is also working to improve its beef, pork, and poultry platforms to match the taste of animal protein.

In March, Beyond Meat launched Beyond Breakfast Sausage in Canada with Starbucks (NASDAQ:SBUX). The company expanded its partnership with Starbucks by launching Beyond Beef items across China. The company introduced Pesto Pasta, Classic Lasagna, and Spicy & Sour Wrap in China. Beyond Meat has also forged a distribution partnership with Sinodis—a local distributor. The company hopes that the partnership will unlock growth potential across its retail and foodservice segments. The company also plans to establish a production facility in Asia by the end of this year. Apart from these new partnerships, Beyond Meat has already entered into strategic partnerships with McDonald’s (NYSE:MCD), Dunkin’ Brands (NASDAQ:DNKN), and Yum Brands’ KFC. So, I think that all of these initiatives could boost Beyond Meat’s sales going forward.

For 2020, analysts expect Beyond Meat to report revenue of $456.6 million—YoY growth of 53.3% from $297.9 million in 2019. Analysts also expect the company’s EPS to rise 134.8% to $0.10 for the same period.

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Analysts’ recommendations

Since Beyond Meat reported its first-quarter earnings, Piper Sandler, JPMorgan Chase, Jefferies, UBS, Bank of America, and Berenberg have all raised their target prices. As of May 12, analysts’ consensus target price was $85.66, which implies a fall of 37.4% from its closing price on May 12. Among the 18 analysts, 50% recommend a “hold,” 22.2% recommend a “buy,” and 27.8% recommend a “sell.”

Beyond Meat’s valuation multiple

As of May 12, Beyond Meat’s enterprise value was at 18.1x analysts’ 2020 revenue expectations of $456.6 million and at 11.7x analysts’ 2021 revenue expectation of $704.7 million. The revenue estimates represent a YoY growth of 53.3% in 2020 and 54.3% in 2021. Although Beyond Meat’s valuation multiples look expensive at these levels, they’re justified.

In the US, the company’s household penetration is still just 4.0%. Beyond Meat has a small number of SKUs with limited distribution levels. More customers have been craving healthier products, so Beyond Meat’s sales should keep rising. Also, the company has significant scope to expand in the foodservice segment. So, I think that investors with a longer horizon should keep accumulating the stock.

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