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Investors Ignore Analyst Warnings, Pile into BYND Stock

Sejuti Banerjea

Beyond Meat BYND delivered encouraging results beating expectations by a sliver on the top line while meeting on the bottom line.

Analysts at Jefferies, Credit Suisse, Goldman Sachs and JPMorgan raised their estimates and price targets (all of which are still below the company’s current price), and continued to issue warnings about an imminent slump when reality strikes.

But investors couldn’t care less. The novelty of a new product, the anticipated disruption of a $1.4 trillion market, the strong revenue growth of 215% (yes!), existing operating leverage and management assurance that 2019 adjusted EBITDA will approach breakeven were all too much to handle at one shot.

Management also mentioned that foodservice was doing stronger than retail, having grown 6X over the prior year. Apparently, restaurants serving the burger patty are seeing increasing footfall. So naturally they must be stepping up orders and arousing interest at even more restaurants.

And what about the rumors that McDonald's MCD was in talks with the company? Of course management let out that any such future partnerships weren’t included in the guidance. So yummy, that means scope for upside!

It’s another matter that analysts are factoring in higher sales than the guidance since management called it “conservative.” Will it or wont it beat those revised expectations? With $40 million on the wall, BYND needs another $170 million in the remaining quarters to make the guided revenue of $210 million for the year.

Quarter two will be stronger, says management, with quarter three even stronger. Current expectations are for a drop off thereafter. Since repeat customers are 40-50%, management must be expecting to get the things before many new people. There’s definitely a deal or two in the works that will fructify real soon and Europe will compound that.

So the bet is that new deals announced mid-quarter will keep share prices buoyant in the next couple of quarters. In quarter four, the company will likely be working on growing sales at existing partners and reaching breakeven. If it falls very far short, there could be a pullback. But if it’s in the ballpark, maybe share prices will stabilize. That seems to be where we’re headed.  

Management also outlined three growth drivers for the slightly longer term, the first being taste and sensory, the second, nutrition and the third, price. Taking beef as the measuring yardstick, it has made some progress on the first two and will work toward the third. So over a 5-year period, the target is to deliver tastier, more nutritious patties at lower prices than beef. Other meats may follow, we don’t know. So look for dollar increases in R&D and SG&A through 2020 and 2021 at least.

The company’s longer term targets are gross margins in the mid-30% range, EBITDA/revenue in the mid-teens percentage range, in line with other best-in-class consumer packaged goods companies.  

There has been some talk about competition, because suddenly there seems to be a large number of offerings at new and existing meat suppliers. Management claims that Beyond is the best. So we’ll just have to wait and see!

Recommendations

The valuation looks tricky to us, so the shares have a Zacks Rank #3 (Hold). But there are many other attractive stocks in the food industry, including BRF S. A. BRFS, Campbell Soup Company CPB, Celsius Holdings CELH and Flowers Foods FLO, all of which have a Zacks Rank #2 (Buy). Or better, you can also choose from the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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