D.A. Davidson analyst Brian Holland questions how quickly Beyond Meat’s partnership with PepsiCo can be accretive.
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Beyond Meat received its fourth downgrade of 2021 on Wednesday, as D.A. Davidson warns that the plant-based protein maker’s recent short squeeze rally can’t last.
Analyst Brian Holland cut his rating on Beyond Meat (ticker: BYND) to Underperform from Neutral, although he did slightly increase his price target, to $135 from $133. He cites the roughly 40% gain in the past month, “on news flow and short covering.”
As Barron’s noted last week, Beyond Meat, which has nearly 43% of its available shares shorted, was caught up in the squeeze that pushed many consumer names higher. Retail investors piled into heavily shorted stocks, causing bears to cover their positions, i.e. buy shares to limit their losses. That created a feedback loop that led to major swings, most famously for videogame retailer GameStop (GME).
Those rallies led to plenty of downgrades for individual companies, with analysts loath to raise their price targets on nonfundamental factors. Yet Holland is concerned about more than just the short squeeze.
One recent headline was Beyond Meat’s partnership with PepsiCo (PEP), a joint venture to develop snack products with plant-based proteins. Holland questions how quickly this deal can be accretive, given that Beyond Meat hasn’t previously mentioned snacks or beverages in reference to future brand growth. He estimates that the new business would have to generate $700 million in annual revenue by fiscal 2025 to justify where Beyond Meat trades today—a tall order, especially given scant details released about the companies’ plans.
In addition, Holland worries that nearer term, retail sales may continue to disappoint, as they did when Beyond Meat most recently reported results. While the company attributed some of the miss to consumers who had already stocked up earlier in the year, he doesn’t think that can explain weakness in recent data, and with the pandemic still raging, restaurant sales are unlikely to be able to make up the difference.
Beyond Meat is down 0.7% to $166.04 in recent trading. The shares are up 34% since the start of the year.
Write to Teresa Rivas at [email protected]
