Is Beyond Meat worth US$140 a share?

Plant-based burger patty producer Beyond Meat (NASDAQ: BYND) is scheduled to report results for the second quarter of fiscal 2020 on Tuesday 04 August 2020 after market close.

Below, we highlight three key considerations that investors should pay attention to ahead of the alternative meat maker’s upcoming earnings report.

Beyond Meat stock has rallied 73% since May 2020

Beyond Meat’s share price has risen as much as 73% since early May 2020, with investors flocking to the food stock even as the Covid-19 pandemic worsened.

The Beyond Meat stock, according to some reports, has been able to rally throughout the lockdown period because of its reputation as the only publicly traded ‘pure play’ plant-based meat company. Impossible Foods, its biggest rival, is still privately owned.

Furthermore, despite Q1 sales already being impacted by Covid-19 stay-home measures across the US, the company was still able to beat Wall Street revenue estimates of US$87 million for Q12020 by posting net revenues of US$97.1 million.

While Q2 sales are expected to be hit harder, Beyond Meat had stated in its Q1 earnings release that it expects to benefit from greater food-at-home consumer demand via its retail channels.

Nevertheless, the stock appears to be severely overvalued, when comparing its price-to-earnings ratio to the rest of the meat products industry.

Beyond Meat closed last week’s market session at US$125.90 per share. That share price represented a trailing price-to-earnings ratio of 1398.89x, which is way above the US Food – Meat Products industry’s average P/E ratio of 13.89x.

Beyond Meat rated a ‘hold’ by Wall Street analysts

Across the board, Beyond Meat currently has consensus rating of ’hold’ from 21 Wall Street brokers, based on MarketBeat data.

The stock has also received an average 12-month share price target of US$115.44 per share, with a high estimate of US$173 and low estimate of US$68, according to TipRanks.

In the last one week, two investment firms – namely Oppenheimer and Canaccord Genuity have rated Beyond Meat shares a ‘hold’, with Canaccord reiterating a share price target of US$140.

Meanwhile, Citigroup and UBS Group gave the stock a ‘sell’ call, alongside a price target of US$123 and US$105 (up from US$75) respectively, implying that the stock is overvalued.

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Although Bernstein analysts raised their price estimates to US$133 per share while maintaining a ‘market perform’ rating on the stock, they still saw ‘limited near-term upside’ for the stock as revenue is expected to be reduced to around 52% year-on-year, ‘a far cry’ from the 141% annual growth the company experienced in Q1.

The researchers noted that roughly half of the company’s sales comes from distribution to restaurants and other food service channels.

Bernstein analysts further cautioned that ‘this significant slowdown in sales growth could shock some retail investors, who tend to move the stock’.

Beyond Meat beat sales estimates for four straight quarters

Analysts polled by FactSet have given a consensus EPS estimate of minus US$0.02 per share alongside expected revenues of between US$88.6 million and US$109.5 million for the patty producer’s Q2.

Beyond Meat has chosen not to provide any financial guidance for the rest of 2020, given the ongoing uncertainty related to the Covid-19 pandemic, including the magnitude and duration of the impact to the foodservice channel, in particular, it stated in its Q1 report.

Despite the lack of a forecast, the company has nevertheless repivoted its sales strategy and launched some new products in the last few months, including the Cookout Classic, a limited edition burger 10-pack available at Walmart and Target stores.

For existing shareholders, it is probably also worth noting that the company has surpassed consensus revenue projections in the last four reporting quarters.

On the other hand, earnings per share (EPS) surpassed Wall Street estimates in Q3 of 2019 as well as Q1 2020, but missed targets in Q2 2019 and Q4 2019.

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