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Beyond Meat (BYND) Soars as Mock Meat Bulls Rule

Sejuti Banerjea
Shorting Beyond Meat? Be Careful...

Beyond Meat BYND, the maker of a veggie burger using peas, beet juice, pomegranate juice and other unlikely ingredients and condiments, saw shares rising nearly 8% yesterday after the bell. Its closing price of $86 is also up 244% from the IPO price of $25 launched nearly a month ago (the company started trading at a premium). In contrast, the S&P 500 was actually down 4.9% over the past month.

The latest jump in BYND prices came from a positive investment note from J.P. Morgan analyst Ken Goldman. The analyst says that the mock meat market will be worth $100 billion 15 years from now, at which time Beyond Meat, being an early entrant will corner at least a 5% share or around $5 billion in revenue. The company generated sales of $88 million last year, so this is pretty huge.

According to Nielsen data released by the Good Food Institute (GFI) in September last year, the plant-based meat market grew 23% to $684 million in the 12 months ended Aug 11. This was much higher than the 2% growth in food overall. Major players included Morningstar Farms, Gardein, Lightlife, Beyond Meat and Boca. Beyond Meat grew the fastest at 70%, with Field Roast (up 68%) close on its heels. Gardein (up 51%), Dr. Praeger’s (up 44%) and Quorn (up 31%) were next. GFI estimates that 14.7 million (12%) of U.S. households buy this meat. So Goldman’s projections of BYND revenue growth may not be much off the mark.

Coming off its success in the U.S. where its products are sold through most supermarkets and around 10,000 food service outlets, the company is looking to expand in Europe. Initial testing showed demand beyond its expectations, so the company is wasting no time.

Its European manufacturing plant, built in partnership with Zandbergen World's Finest Meat in the Netherlands, will be completed in the first quarter of 2020, enabling it to speed up expansion in the region while cutting transportation cost. While the company’s primary focus is in northern and western European markets, it is seeing demand from the south and east as well.

Euromonitor estimates that around 22% of Europeans are looking to reduce their meat intake. This is in perfect sync with the company’s goals. Rather than attempting to convert meat eaters or selling only to vegetarians and vegans, its primary target is the meat eater because this group is larger in size. So the products are sold in the meat section of groceries, promising comparable taste and experience while being healthier (no cholesterol), friendly toward animals and making for a more sustainable environment.

This brings us to the question of cost. There’s plenty of data out there these days supporting the view that vegetarian food is less resource intensive. So the same amount of land would theoretically generate more plant based protein than would be generated from cultivating animal feed over the lifetime of the animal. There will also be savings in terms of storage, power and other overheads.

But until there’s some momentum in the market, product sourcing remains a challenge for mock meat production. Producers have to, in some cases, secure their ingredients up to a year in advance to make sure they don’t run short. This kind of thing will keep near-term prices high. Unless of course there’s some other factor in play (such as a push to drive trade war-impacted farmers in that direction, for example).

Once the cost angle works out, to choose or not to choose a veggie burger will primarily be a question of taste and preference. Since most normal people don’t enjoy slaughtering/torturing animals but eat meat because that is their conditioning, there will be more takers for tasty veggie burgers over time, as an option if not for anything else.

Particularly so because scientific research increasingly shows that vegan is better for health.

Last Word

The primary challenge for players is over enthusiasm.

On the ingredients side, this could lead to genetically modified crops. A certain amount of plant “husbandry” is already there, but too much interference could destroy the natural balance of nutrients in vegetables, with related side effects (like pumping hormones etc into livestock is harmful for meat eaters). Minus the health consideration, the going can be rough especially since vegans are generally the more informed amongst us.

The other challenge is with respect to investors. While Beyond Meat is the only publicly traded mock meat company at the moment, we are likely to see many more announce their IPOs soon. And if the current level of enthusiasm is sustained or breached, the market is likely to be overvalued. As things stand now, Goldman Sachs, Jefferies and BoA-Merrill Lynch analysts already feel that Beyond’s valuation is a bit high given the untested waters.

Buy-ranked stocks in the industry are General Mills GIS, Aramark ARMK, Celcius Holdings CELH, Flowers Foods FLO and J & J Snack Foods Corp JJSF. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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