It has been a really bumpy ride for Beyond Meat (NASDAQ:BYND) BYND), a very successful play on the meat alternative market.
First, there was a bump-up from the pandemic-induced meat crunch, when COVID hit meat producers and people were stocking up on protein to reduce the number of visits to the store. But following that period, meat production normalized, so the benefit from that wore off. Additionally, its smaller foodservice customers (and it’s partnered with a whole bunch of those) were badly hit by the pandemic, which of course hit demand. On top of that, there were additional repackaging costs as production initially meant for foodservice had to be diverted to retail.
The company did launch in China and partnered with Walmart (NYSE:WMT) WMT, as well as restaurants like Taco Bell, KFC and Starbucks SBUX. It also introduced new categories like meat balls. But the MacDonald’s deal disappointed, as Beyond’s role at the fast food chain appeared to be less than what was initially expected.
So unsurprisingly, it reported a bad miss in the September quarter, which had analysts pulling down their estimates. As a result, the Zacks Consensus Estimate for 2021 went from 52 cents to 8 cents. It’s another story that Beyond Meat is expected to report a 40 cent loss in 2020 (14 cents of that is expected to come in the fourth quarter), so any profit this year is a big achievement.
Fast-forward to today
The company announced a partnership with PepsiCo (NASDAQ:PEP) PEP that will operate through a newly created entity, PLANeT Partnership LLC. This entity will focus on plant-based snacks and beverages, thus furthering Pepsi’s goal of becoming a more significant player in the healthy snacks category. It will give Beyond Meat access to the marketing and distribution clout of one of the leading players in the snacks and beverages segment. It will also allow Beyond Meat to add to its range of products, which the company said are still under development. Other details weren’t available, but management could tell us more when it reports in Feb-end.
The announcement was made before market open and shares initially soared 30% before settling, to close at 17.7% higher.
A deal with a player as big as Pepsi is pretty huge. Although this may not be as exciting as a MacDonald’s deal might have been, it has prospects that are hard to ignore. Pepsi is a household name in many countries across the world, so scaling for international expansion will be much easier with a company like this. Besides, a toe-hold through snacking products while entering any new market is probably a good way to build brand loyalty.
What to do with the stock?
This year, Beyond Meat is expected to grow revenue 52.7% and earnings 121.9%. That’s despite the generally weak outlook for restaurants, which aren’t expected to see their usual traffic until a successful vaccination of the population.
The growth numbers would be exciting if the shares were more reasonably valued. At 18.7X sales, they are way more expensive than the S&P 500’s 4.5X.
That said, you’ll hardly ever find a very strong growth stock at an attractive valuation. So I’d say that if you’re already holding the stock, hang in there. This is a trend-setting number and you’ll surely gain, despite increased competition. And if you’re a new player, better wait for the next pullback. This is a volatile stock given its size and scope of operation, so there will surely be more of those.
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