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

Beyond Meat Inc (NASDAQ: 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 (NYSE: 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.

Price Action

At time of publication, Beyond Meat shares were trading down 4% at $126.12.

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Photo courtesy of Beyond Meat.