Wells Fargo Is Cautious On Beyond Meat's Stock As Competition Rises

Beyond Meat Inc BYND might look tasty with its growth in retail sales and consumer channels, but one analyst isn’t yet ready to order.

The Rating

Wells Fargo analyst John Baumgartner initiated coverage with a Market Perform rating and a $125 price target.

The Thesis

While many investors reflect on the 15% market-value share of plant-based milks to gauge the potential of plant-based meats, Wells Fargo bases its calculations on the milks’ 6% market-volume share. The distinct approach suggests the 2029 U.S. plant-based-meat market will be worth $12 billion to $15 billion — a figure far below alternative estimates for $40 billion.

Still, Wells Fargo is bullish on the concept of plant-based meat, and the industry’s prospects bode well for Beyond Meat.

“In BYND, we see a company well positioned to grow in the nascent plant-based meat alternatives space; a category strongly suited to benefit from generational change as consumers’ concerns pertaining to dietary health, environmental degradation, and animal welfare increasingly drive food purchase decisions,” Baumgartner wrote in a note.

Retail distribution has popped 90% between 2018 and 2019, and Baumgartner suggested new capacity might support $400 million in 2020 sales. He further estimates 500-basis-point gross margin expansion to 1,000 basis points through 2024.

Still, the company could hit a roadblock as competition grows. Before buying Beyond Meat, Baumgartner awaits visibility on emerging competition and broader adoption throughout the food marketplace. He recommends Danone SA and Nomad Foods Ltd NOMD for plant-based food exposure while Beyond Meat works to prove it deserves a higher valuation.

The analyst forecasts a 36-cent loss per share for the 2019 fiscal year, with a 9-cent earnings per share in 2020.