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Beyond Meat’s Q1 Disappointing on Many Fronts

We expect to make about a 25% reduction to our $98 fair value estimate, but shares are undervalued

No-moat Beyond Meat’s BYND first-quarter results were disappointing on nearly every front. While we were pleased with 12% volume growth, sales advanced only 1% as the firm cut prices by 10% to narrow gaps with competitors. Moreover, this measure, coupled with a 940-basis-point hit from temporary costs associated with the launch of jerky, resulted in a gross margin of just 0.2%, far lower than the 31.7% mark in the same period last year. Further, selling, general, and administrative expenses in the period doubled to $66 million, much more than we expected.

While disheartened by the first-quarter results, we see several reasons to remain optimistic on Beyond’s long-term prospects. First, Europe continues to have a ferocious appetite for plant-based meat, with wide-moat McDonald’s McPlant experiencing strong demand in the region, leading to nationwide launches in the U.K. and Ireland and expanding tests in Austria. Thus, despite media reports of disappointing test results in some U.S. markets, McDonald's remains bullish, stating that the sandwich drives incremental traffic to the European stores and plays an important role in the chain's future. Second, Beyond plans to ramp its marketing efforts to educate consumers that, contrary to widespread misinformation, its products are free of genetically modified organisms, or GMOs, are made with simple ingredients, and have significant environmental benefits. We think these investments will increase demand for Beyond’s products and help distinguish it from competing products, such as the Impossible Burger, which has GMOs.

Although we plan to reduce our $98 fair value estimate by about 25% to account for lower prices and higher costs, Beyond appears significantly undervalued, given the massive selloff in the shares in recent months on overall stock market weakness, investor risk aversion, and concerns about slowing plant-based meat growth in the U.S. retail channel.

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