Analysts Slice Beyond Meat Price Targets Ahead Of Share Lockup Expiration

Investors are losing their appetite for Beyond Meat Inc BYND even after the company posted a profitable first quarter. Shares plunged more than 23% Monday and were falling nearly 20% as of midday Tuesday. 

The company's lockup period expired Tuesday, allowing early investors to sell their shares. 

Earnings Recap

Beyond Meat beat consensus estimates on sales, gross margins, EBITDA and earnings per share. Its cost of goods sold declined 26%, while net sales grew 250%.

“Overall results were solid, as this marked the first quarter of positive net income, with higher-than-expected sales and gross margin offset by increased investments in the brand and manufacturing capabilities,” Bank of America Merrill Lynch analyst Bryan Spillane said in a Tuesday note. 

"However, we believe results will be overshadowed as the lock up expires 10/29, allowing pre-IPO investors to exit the stock."

Growth Prospects

Beyond Meat expanded distribution sites by 9%, which compounded 40% consumer repeat rates to drive volume up 269%. The company said it intends to double capacity by mid-2020, including by adding new protein suppliers able to support $1 billion in sales.

“This increases our confidence that the company can satisfy incremental demand from McDonald’s, Denny’s, and KFC if the test markets succeed,” Credit Suisse analyst Robert Moskow said in a Tuesday note. 

Other analysts weren’t as impressed.

“We do not expect this to perfectly correlate to FY20 sales as it would require lines/co-manufacturing running at full speed and increased shifts per day,” said BofA's Spillane.

Market Threats

Credit Suisse expects operating leverage to drive profits in the near-term, but increased competition in plant-based meat substitutes could offset the effects.

“We don’t see anything stopping Beyond from reaching $1 billion in sales in the near-term,” Moskow said.

“But Impossible Burger’s entrance into retail stores, Nestle’s entrance into the category and the likelihood of greater private label availability makes the path to [$2 billion-plus] a bit more complicated in our view.”

The competition will force Beyond Meat to work harder for prospective buyers.

“BYND hasn’t yet faced the need for material retail promo, but with competitive entrants ramping through 1H20, we expect an uptick in promo,” Wells Fargo analyst John Baumgartner said in a Tuesday note.

“Further, we anticipate a ramp in opex to support both domestic brand investment and build international capabilities.”

Tigress Financial analyst Ivan Feinseth said he expects Beyond Meat to drop prices to retain consumers.

The Ratings

Tigress recommends avoiding the stock altogether, but peers are less pessimistic:

• Bank of America maintained a Neutral rating and cut its price target from $150 to $122;
• Credit Suisse maintained a Neutral rating and cut its target from $135 to $115; and
• Wells Fargo maintained a Market Perform rating and cut its target from $125 to $100.

“We believe that increased liquidity in the stock following the expiration of the six-month lock-up period on Oct. 29 will put the shares into a lower valuation range,” Moskow said to justify his price cut.

Price Action

Beyond Meat shares were down 19.4% at $85.06 at the time of publication.

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Photo courtesy of Beyond Meat.