INVESTMENT THESIS
Beyond Meat Inc. (NGS: BYND).
The closure of restaurants and the economic impact of COVID-19 add uncertainty to the outlook, and the company has withdrawn its 2020 guidance.
RECENT DEVELOPMENTS
Following the 3Q20 earnings report on November 9, the stock is trading in the high-$130s.
Beyond Meat offers a range of products that provide protein from plants as an alternative to meat, whose production is increasingly seen as harmful to the environment. The company’s goal is to find ‘a better way to feed the planet’ while addressing four issues: human health, climate change, constraints on natural resources, and animal welfare. The company has a widely recognized brand name, and benefits from both an experienced management team and growing demand for its products from both retail and restaurant customers.
Beyond Meat faces competition from both traditional rivals, including meat purveyors and supermarket chains with private-label products, and from newer companies such as Impossible Foods. While the space is becoming more crowded, we believe that Beyond Meat stands out thanks to its well-known brand and strong presence in supermarket aisles. In fact, we believe that it is establishing itself as the ‘name brand’ in plant-based protein, much as Amazon has done with e-commerce, Google with search, and Facebook with social media.
EARNINGS & GROWTH ANALYSIS
In 3Q20, Beyond Meat benefited from ongoing secular growth as well as from factors related to the coronavirus. Driven by strong demand for groceries from stay-at-home families, U.S. meat substitute volume rose from the prior year. On the downside, Beyond Meat’s foodservice sales were hurt by the closure of many restaurants and restrictions on restaurant capacity. Amid the current second wave of the pandemic, the ability of restaurants to reopen and remain open remains uncertain.
On November 9, Beyond Meat posted 3Q20 revenue of $94 million, up 3% from the prior year. Retail revenue of $62.0 million (66% of total revenue) rose 41%. Restaurant & Food Service revenue of $16 million (12% of revenue) fell 11%. The percentage of revenue coming from the Restaurant & Food Service segment was much lower than in 3Q19 due to restaurant closures and other restrictions. The adjusted gross profit was $27.3 million, for an adjusted gross margin of 28.9%. The company posted an adjusted 3Q loss of $0.28 per share, reflecting COVID-19 expenses, compared to year-earlier adjusted earnings of $0.06 per share.
We are now valuing BYND on non-GAAP estimates, which call for a loss of $0.17 per share for 2020 and earnings of $0.26 per share for 2021. We previously projected non-GAAP earnings of $0.55 per share for 2020 and $0.91 per share for 2021. We note that the company withdrew its 2020 guidance in early May. In 2019, revenue rose 239% to $298 million and the GAAP loss narrowed to $0.29 per share from $4.75 per share a year earlier.
FINANCIAL STRENGTH & DIVIDEND
The company has more cash than debt due to its mid-2019 IPO proceeds. At the same time, it faces significant competition from both established and newer rivals.
As an early stage public company, Beyond Meat does not repurchase stock. It is also unlikely to pay a dividend for the foreseeable future.
MANAGEMENT & RISKS
Ethan Brown is the company’s president and CEO, and Mark J. Nelson is the CFO and Treasurer.
Beyond Meat has a history of losses, and may be unable to achieve or sustain profitability going forward. It must also invest to expand manufacturing capacity, and faces significant competition from both meat producers and other producers of plant-based alternatives. It also relies on a small number of distributors, so any disruptions could adversely affect its business.
Beyond Meat is also subject to risks involving its brand and reputation, which could be affected by health claims about its products, food-borne illness, and decisions by both U.S. and overseas regulators.
COMPANY DESCRIPTION
The company’s goal is find ‘a better way to feed the planet’ while addressing four issues: human health, climate change, constraints on natural resources, and animal welfare.
VALUATION
The closure of many restaurants and the economic impact of COVID-19 add uncertainty to the outlook.
For unprofitable companies, our preferred metric is price/sales-to-revenue-growth. On this metric, BYND is trading at a multiple of 0.33, below the peer average of 0.54 for a wide group of online companies. For a smaller subset of ‘app economy’ peers, including Uber, Pinterest, and Snap, most of which have outperformed the market in 2020, BYND is trading well below the peer average of 0.82. In all, peer indicated value exceeds $140 per share.
On December 1, BUY-rated BYND closed at $137.25, down $2.65.
Source: Argus