By Evie Liu
The rising cost of almost every product on grocery store shelves might give people another reason to skip expensive plant-based meat. A Mizuho analyst says that is bad news for Beyond Meat, the only publicly traded pureplay stock in the industry.
Beyond Meat shares ticker: BYND) shares tumbled 5.9% to $8.32 on Thursday after John Baumgartner downgraded the stock to Underperform from Neutral and cut its target price to $5 from $12.
Shares of the plant-based food company have underperformed the broader market this year. Beyond Meat shares are down 33% year to date, compared to the S&P 500's 13% gain. Plant-based beverage makers have also suffered. Oatly $(OTLY)$ and SunOpta (STKL) have both tumbled more than 60%.
Despite the initial excitement among early adopters, plant-based meat has struggled to break into the mainstream.
In the latest quarter ended in June, Beyond Meat's sales declined 30% from a year ago. The vegan-meat company could face further weakening sales and earnings through 2024, Baumgartner writes.
For 2023, Beyond Meat sees revenue of $360 million to $380 million, a year-over-year decrease of 14% to 9%. Baumgartner says he expects revenue to come in at the low end of that guidance, and sees another 1% decline in 2024.
That's a more bearish view compared to the Wall Street consensus of 6% revenue growth next year , according to FactSet. Baumgartner's new price target on shares reflects a 3.5 times enterprise value to his estimate for 2024 revenue.
Beyond Meat didn't respond immediately to a request for comment.
Plant-based meat is roughly 30% to 50% more expensive than traditional beef, according to the analyst. As inflation makes a dent in consumer budgets, people have been reluctant to try out new and premium products, Baumgartner says. As of September, prices for food at home have increased 20% since the start of 2021, although growth has flattened since earlier this year.
In a survey conducted by Mizuho, about one third of plant-based meat buyers said that environmental reasons are the top driver for their purchase. Baumgartner says that motivation could easily be pushed down the priority list when economic conditions get tough.
The Mizuho survey also found that 30% to 45% of consumers who have tried Beyond Meat didn't like the product, and many don't plan to try it again. Gen Z and Millennials, particularly, had little willingness to give the product another shot.
Fake-meat makers are seeing declining sales volume at grocery stores, and retailers are giving their products less shelf space, says Baumgartner.
Sales at fast-food restaurants are also stagnant. "Our survey suggests minimal improvement in consumers' inclination to purchase plant-based meat instead of animal beef at quick-service restaurants," Baumgartner writes.
The analyst cut his 10-year outlook for U.S. plant-based meat sales to $7.6 billion from $9.4 billion, which means the sector would capture roughly 2.5% of the meat market instead of the previous projection of 3%.
The good news is that Beyond Meat might be turning a corner in cost management. The company laid off 19% of its workforce in 2022. Operational expenses in the latest quarter have shrunk by one third from a year ago, while its net loss declined to $53.5 million from $97 million.
Write to Evie Liu at evie.liu@barrons.com
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October 12, 2023 16:24 ET (20:24 GMT)
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