Beyond Meat: Plant-Based Profits?

03/12/2020 5:00 am EST


James Kelleher

Director of Research & Senior Analyst: Technology, Argus Research Corporation

We are launching coverage of Beyond Meat (BYND) with near- and long-term "buy" ratings. We view it as the leading company in the plant-based protein space, with a widely recognized brand and prospects for continued market share growth, asserts Jim Kelleher, analyst with Argus Research.

We expect demand for plant-based alternatives to meat to continue to grow, driven not only by consumer preferences for healthier food, but also by environmental concerns, as modern industrialized meat production is increasingly recognized as harmful for the environment.

The company’s core products include Beyond Burger, which management calls the world’s first plant-based burger that “looks, cooks and satisfies like beef without GMOs, soy, or gluten.”

It also offers Beyond Beef, which it calls “the first plant-based ground meat to deliver on the versatility, meaty texture and juiciness of ground beef.” The company also offers Beyond Meat crumbles (for use in tacos and with pasta) and Beyond Sausage (a substitute for pork sausage).

In 2019, Beyond teamed up with Dunkin Brands (DNKN) to produce the “Beyond Sausage” breakfast sandwich, which pairs a Beyond Meat sausage patty with eggs and cheese.

Other retail partners include A&W Canada, Carl’s Jr., and Tim Horton. Companies that are testing or have tested BYND products include McDonald’s (MCD) and KFC, which has tested a Beyond Fried Chicken concept in the Southeast U.S.

Demand for the company’s products is being driven by traditional concerns about human health and opposition to the use of livestock as a food source, as well as by environmental concerns — especially among younger consumers, who increasingly see the production of beef, pork, and poultry as harmful to the environment.

We expect environmental concerns to become an increasingly important demand driver for plant-based protein going forward, and expect Beyond Meat to be a major beneficiary of this trend.

As a relatively new company with a short trading history, Beyond Meat is unprofitable on a GAAP basis and may remain unprofitable for an extended period. For such companies, we focus on discounted free cash flow to determine multiyear and terminal value; value relative to peers, with a focus on comparable start-ups and other new companies; and the price/sales-to-sales-growth ratio.

Beyond Meat has been volatile in its short trading history. The company went public on May 2, 2019 after pricing its stock at $25 per share the preceding evening. BYND began trading at $46 per share and surged to $66 by the end of the first day. It reached a peak above $235 in late July 2019 before dropping to the mid-$70s in December.

On our discounted free cash flow valuation, we see value for BYND in the $170s. Our blended valuation for BYND is in the high $130s, above current levels and implying a return greater than our total-return expectations for the broad market.  We are initiating coverage of BYND with a target price of $130.

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