How Non-Vegans Lift Beyond Meat Stock
Beyond Meat Inc. (NASDAQ: BYND) has been a Wall Street darling since its initial public offering on May 2, 2019. Although the stock price for the producer of plant-based meat substitutes is down nearly 100 points from a spike last July, it is up more than 70% year over year and more than 180% from its 52-week low in March.
The company is courting consumers beyond what might at first glance seem to be the natural market: vegans and vegetarians. Only 1 in 8 Americans have ever considered themselves to be vegan or vegetarian, according to Vegan Bits.
The products’ availability in restaurants, food services and grocery stores is putting it on the plates of part-time vegetarians, known as “flexitarians.” Recent meat shortages stemming from supply-chain problems caused by COVID-19 outbreaks at meat-packing plants have been attracting customers who are simply seeking a protein source.
Not Just for Vegetarians
So even though Beyond Meat makes vegan products, the customer base is wider than that segment. In the company’s earnings call on May 5, after it released its first-quarter results, the words vegan and vegetarian were not even mentioned.
“Our results continue to validate the strength of the broader plant-based meat movement and our leadership position therein,” chief executive Ethan Brown said. “We achieved net revenues of $97 million in Q1 2020, an increase of 141% compared to the first quarter last year, despite growth being negatively impacted toward the end of the quarter by the pandemic.”
The company’s strategy is to aggressively expand the availability of Beyond Meat products in both supermarkets and restaurants. The coronavirus pandemic and the accompanying stay-at-home orders have reduced sales to restaurants and food services, although Beyond Meat products are available at Dunkin’ (NASDAQ: DNKN) and at Starbucks (NASDAQ: SBUX) stores in Canada. Beyond Meat is also expanding into China via Starbucks.
“It has long been our aspiration to be a global protein company and being of service to the growing demand for high-quality protein in China is a key part of our strategy,” Brown said.
Beyond Meat also has an agreement with Sinodis, a distributor to retail and food service outlets in China.
Growing Share of the Meat Counter
In supermarkets, Beyond Meat has taken a larger share of the meat counter since producers like Tyson Foods Inc. (NYSE: TSN) have struggled with temporary shutdowns at meat-processing plants. In some grocery stores, the selection is reduced on various cuts of meat and customers are limited in how much meat they can purchase.
This provides multiple opportunities for people who are not vegans or vegetarians to try the alternative products.
“We remain highly optimistic about our long-term growth prospects,” Brown said, noting that there is vast opportunity for growth.
Household penetration in the United States for Beyond Meat products is about 4%, as measured by Nielsen. And Beyond Meat has only a tiny fraction of the $1.4 trillion global meat category, Brown said.
Gaining More Attention
The stock market continues to pay attention. Recently BTIG analyst Peter Saleh initiated coverage on Beyond Meat with a Buy rating and a $173 price target. Saleh noted Beyond Meat’s strategy of expanding its market share, as well as increasing competition in the space.
“It’s really resonating with a young female consumer in the urban environment,” Saleh said Thursday on CNBC “Trading Nation.” “That’s really what’s been driving a lot of the sales especially at the restaurants recently, so you know I think that continues and I think you see it become more ubiquitous.”
BTIG said that Beyond Meat needs to expand its targeted customer base beyond young and female customers in urban markets. It also needs to become more competitive on price, compared with traditional protein sources from meat.
The BTIG rating suggested that Beyond Meat may actually benefit from increased competition. Larger companies, like Nestle, Kellogg and Tyson, are likely to increase market awareness and should help grow the non-meat protein category.
Not all analysts are enthusiastic about Beyond Meat. Bryan Spillane of BofA Securities recently repeated his Underperform rating, which is effectively a Sell rating at other firms. But he did raise Beyond Meat’s price objective to $68 from $58.
Overall, the $173 price target implies 25% upside from the most recent closing price of $138.11 on Friday.
Of Course, Celebrity Endorsements
Meanwhile, Beyond Meat is not waiting for competitors to expand market awareness of meat substitutes. In a new “Why Go Beyond” advertising campaign, celebrities Kevin Hart, Nikki Bella, Chris Paul, Liza Koshy and Snoop Dog, an investor in the company, explain why they like the meat replacements.
The ads were shot before the COVID-19 crisis, Ad Week says, and the celebrities push health and environmental benefits of eating meat substitutes.
“The plant-based diet is something that I navigated towards,” Hart says in his testimonial. “And, you know, it’s not something that you knock out of the park in the beginning. It’s not something that you need to do all in one day. For me, it was a gradual progression.”