Beyond Meat Analyst Questions Market Opportunity, Starts Stock With A Sell Rating

Plant-based foodmaker Beyond Meat Inc BYND boasts an impressive product backed up by its ability to execute and win market share. However, the total addressable market may not be as large as many assume it to be.

The Analyst

D.A. Davidson analyst Brian Holland initiated coverage of Beyond Meat's stock with an Underperform rating and $130 price target.

Market Share Outlook

Beyond Meat deserves credit for its success in introducing a compelling product to the market so a bearish stance doesn't imply a completely negative view of the company, Holland wrote in the note.

Beyond Meat holds multiple advantages such as a fast growing retail presence, attractive placement and favorable media impressions. However, larger competitors with superior resources are entering the space or looking to do so which implies a more competitive environment in the coming years. Holland said Beyond Meat could settle with a 31% aggregate share of the research firm's U.S. retail plant based meat total addressable market in 2028, or $1.0 billion in Retail segment net sales.

Comparison To Milk

Holland said many U.S. adults purchase plant-based milk alternative products out of necessity, such as being lactose intolerant. The same doesn't directly translate to meat so investors assuming all plant-based milk drinkers are potential plant-based meat eaters is not correct.

The milk substitute market is the most advanced of all plant-based alternatives and holds a 13% share of the $14.3 billion U.S. retail milk market. Within the milk substitute market, 12% of purchases buy once or more a week and represent 62% of all consumption. There are simply fewer adults who "have to find a solution" to animal meat versus milk so similar favorable characteristics are unlikely to play out for Beyond Meat.

Valuation

DA Davidson's price target of $130 per share is based on nine times estimated EV/Sales on fiscal 2024 estimates of $1.2089 billion and discounted back. This multiple is already a 50% premium to Beyond Meat's Growth Staples peers and compares to the stock's current multiple of 29.5 times NTM revenue.

"Though we acknowledge BYND should receive a considerable relative valuation to Growth Staples peers, the current "tech" valuation in our view ignores comparative barriers to entry & consumer efficacy that are inherently lower in Packaged Food," the analyst wrote.

Price Action

Shares of Beyond Meat traded lower by 3% at $156.26 at time of publication.

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