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In fake meat, Corporate America finds real success: Morning Brief

Myles Udland
Markets Reporter

Friday, September 20, 2019

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The meat is fake, but the growth is real

The company of the year is Beyond Meat (BYND). Of this there is little doubt.

Shares of the plant-based alternative meat company are up more than 500% since the IPO, and investors have gone from seeing the fake meat category as a curiosity to the future of packaged foods business. It's like cannabis and crypto, except fake meat is very cool and very legal.

On Thursday, several analysts weighed in on the space.

Barclays initiated coverage of Beyond Meat shares with a Buy rating and $185 price target. Bank of America Merrill Lynch analysts published their results of a social media survey of the space, writing that "we came away constructive on prospects for the plant-based industry given high level of consumer interest." On the other side of this sits D.A. Davidson's Brian Holland, who told Yahoo Finance a Beyond Meat tie-up with McDonald's (MCD) might not be the home run some investors think.

Meanwhile, Impossible Foods is entering the grocery space, launching its signature Impossible Burger in 27 grocery stores in Southern California today. By the middle of next year, Impossible wants to be in grocery stores across the country.

Now, whether you like the taste of these new products or not, think they're healthy or unhealthy, and do or don't make animal welfare a consideration when making food choices, the plant-based meat space is not going to get less hyped in the years ahead.

And this chart from Bank of America shows why.

Meat alternatives have seen sales rise faster than 40% at points during the last year, far outpacing the modest growth often seen in the mature food & beverage industry. (Source: Bank of America Merrill Lynch)

The food and beverage industry, as you can see, is not a growth industry. Sales go up a little bit or down a little bit.

The 40%+ sales growth seen in the meat alternative space at time in the last two years can completely reset expectations for companies that are either in this space or want to be.

In fact, it already has.

To get to its $185 price target for Beyond Meat shares, Barclays is assuming revenue grows at a compound annual growth rate of 95% through 2021. This is en route to Beyond taking 4.5% of the alternative meat market by 2029. Barclays believes this growth will put Beyond's EBITDA margin at around 15% in a decade; last year Beyond's EBITDA margin was -25.4%. Beyond's current valuation is around 50 times sales. This is roughly in-line with SaaS darling CrowdStrike (CRWD) that went public earlier this summer. Shares of Roku (ROKU), another red hot stock of 2019, trade at around 18 times the company’s sales.

Now, in the sense that Beyond uses new processes to make their food, they are a tech company. But the company primarily sells its product to consumers in grocery stores. And yet, it is being valued like a tech company. This qualifies as completely resetting expectations.

And so while this has seemed in many ways like the year of consumer goods fads — White Claw, Beyond Meat, Popeye's fried chicken sandwich — there is little denying that for an industry with few drivers to explosive growth, alternative meats offer companies perhaps their best option.

By Myles Udland, reporter and co-anchor of The Final Round. Follow him @MylesUdland

What to watch today

There are no notable economic releases or corporate earnings results scheduled for Friday. But investors will be monitoring the market action on Friday as stocks flirt with record highs.

Here were the main moves in the market at the end of regular trading Thursday:

  • S&P 500 (^GSPC): +0.00%, or 0.06 points

  • Dow (^DJI): -0.19%, or 52.29 points

  • Nasdaq (^IXIC): +0.07%, or 5.49 points

From Yahoo Finance

  • The Final Round co-anchor Jen Rogers talks to Emmy Award winning actor Tony Hale in her latest installment of “My Three Cents.” He is a star in HBO’s “Veep,” the creator of a new Netflix animated series called "Archibald's Next Big Thing", based on a children's book he co-wrote, and also the voice of Forky in “Toy Story 4” and a forthcoming Disney+ series called “Forky Asks A Question.”

Read more

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Brexit Party leader Nigel Farage (L) laughs with European Commission President Jean-Claude Juncker before a debate on Brexit at the European Parliament in Strasbourg, northeastern France on September 18, 2019. (Photo by FREDERICK FLORIN / AFP) (Photo credit should read FREDERICK FLORIN/AFP/Getty Images)