Beyond Meat Analyst: Attractive Growth Story Takes Back Seat To Valuation Concerns

Plant-based food maker Beyond Meat Inc BYND offers investors an "attractive growth" story, but the valuation makes it difficult to justify buying the stock, according to Longbow Research.

The Beyond Meat Analyst: Alton Stump initiated coverage of Beyond Meat with a Neutral rating.

The Beyond Meat Thesis: Beyond Meat's retail exposure expanded from around 17,000 stores in May 2019 to 28,000 stores at the end of the third quarter of 2020, Stump said in an initiation note. The company is now well-positioned to expand its household presence, the analyst said. 

Beyond Meat's decisions in 2020 to support sales by offering bulk packaging will impact margins, although the pressure will ease in the coming quarters as sales remain strong, he said.

Longbow is estimating that Beyond Meat's retail business will show 32% volume growth and 4% revenue per pound growth in 2021.

In 2022, the company should see 30% volume growth and 2% revenue per pound growth, Stump said. 

Beyond Meat's exposure to the restaurant and food service sector will continue facing pressure amid the ongoing pandemic, the analyst said.

Restaurant chains have delayed adding plant-based food options to their menu, but the pace of acceleration will notably accelerate in the coming months, he said. 

Related Link: Beyond Meat Promises 'Juiciest' And 'Meatiest' Burgers

Perhaps more notable, the research firm's firsthand checks with McDonald's Corp MCD franchisees suggest that Beyond Meat's name will be associated with its new McPlant Burger, Stump said.

Even if McDonald's surprises investors by saying it won't proceed with Beyond Meat at first, the analyst said the decision will be reversed, as customers are "far more likely" to trust a Beyond Meat-made patty versus one McDonald's makes internally.

Finally, Beyond Meat has a clear path to growth, but the stock is trading at around 75 times 2021 EV/EBITDA estimates versus the packaged food group's five-year average trading range of 12 times to 13 times, he said. 

"We believe the current sharp premium carried by the shares accurately reflects BYND's growth profile, especially given uncertainty related to the pace and timing of a recovery in the company's retail and restaurant & foodservice businesses amidst the pandemic."

BYND Price Action: Shares of Beyond Meat were trading 1.91% higher at $137.18 at last check Friday. 

Photo courtesy of Beyond Meat.