Sell Beyond Meat Because a Great Business Doesn't Equal a Great Stock -- Barrons.com
9:19 am ET July 10, 2020 (Dow Jones) Print
By Al Root
Citigroup is urging investors to "look beyond the headlines" and sell Beyond Meat stock.
Analyst Wendy Nicholson launched coverage of the alternative-protein startup Friday with a Sell rating and $123 price target. She calls the story exciting, but expects "near-term pressure as a result of its exposure to the food service segment" and "longer-term pressure as the [alternative meat] category becomes more competitive."
Her argument appears to be a case of not every great business is a great stock.
And, make no mistake, business has been great lately. Beyond (ticker: BYND) has crushed sales expectations over the past year. And Beyond management recently announced new partnerships, putting the company's products into both retail and restaurants overseas.
Nicholson acknowledges that Beyond's growth has been stunning, but notes several risks, too. Alternative meat, she notes, could be a fad. Even if faux-meat has staying power, there is new competition from everyone, ranging from privately held Impossible Foods to non-alternative-protein company Tyson Foods (TSN) to packaged-food giants such as Kellogg (K).
Beyond also does a lot of business in restaurants. It is rapidly shifting sales to retail as restaurants run at reduced capacity because of Covid-19. Beyond's first-quarter sales weren't an issue, but given the stock's high valuation multiples, any distribution hiccup could be a risk for investors.
Beyond trades for about 12 times estimated 2021 sales, far higher than other food peers.
The risks she cites, however, have been there for a while. And it appears investors are more into the excitement and less so the risks. Beyond stock, after all, is on a tear, up 87% year to date. The gains have been driven by headlines -- such as the new Starbucks (SBUX) partnership -- but headlines are also driving real business gains. Expansion into China, for instance, is propelling sales estimates higher.
Over the past three months, 2021 sales estimate have gone to $720 million from roughly $620 million. Even pandemic-affected 2020 sales estimates have risen over the same span. Beyond stock has gained almost 100% in that time.
Despite, or perhaps because of, the incredible stock gains, Beyond is a relatively controversial stock on Wall Street. Only three out of 20 rate the stock Buy. The average Buy-rating ratio for stocks in the Dow Jones Industrial Average is about 55%.
Analysts also appear to struggle with valuation: The average analyst price target is about $100 a share, about 28% below recent levels. Price targets for Beyond from large brokers range from roughly $44 to $180. The $136 bull-bear spread is almost 100% of the current stock price. That spread is about twice as wide compared with stocks in the Dow.
Barron's also panned Beyond shares in May 2019. It's an older call, and did work out through year-end 2019. When we made our call, the stock was about $100, and it closed the year at $75.60.
Back then, valuation was our problem too -- not business execution, which has been excellent. The bearish call, obviously, hasn't worked out this year.
Beyond stock was down about 2% in recent premarket trading to $138.48. S&P 500 futures were off 0.4%.
Write to Al Root at allen.root@dowjones.com
(END) Dow Jones Newswires
July 10, 2020 09:19 ET (13:19 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
