Since its IPO two months ago, alternative meat company Beyond Meat (BYND) has soared, and the hype may be an opportunity for Kellogg (K). The food giant actually owns the largest fake meat operation, Morningstar Farms, raising questions about whether Kellogg should monopolize on the craze, spin off the brand, and list it publicly.
“You have an absolutely crazy mania for Beyond Meat stock at the moment,” MarketWatch columnist Brett Arends tells Yahoo Finance’s YFi PM. “It’s interesting because Kellogg has been an absolute dog of a stock for a long time, but they happen to be sitting on a very substantial fake meat operation ... They don’t tell the data but it has around $400 million of annual sales, which would be about twice as much as Beyond Meat is selling at the moment.”
And Kellogg could use a boost. The stock peaked in July of 2016 at $87 but is now down below $54. Kellogg does not provide sales for the brand, but it did tell Arends, who recently wrote an op-ed on Kellogg’s fake meat potential, it serves over 90 million pounds of Morningstar-branded food to consumers annually. One third of those sales were fake burgers, while other sales consisted of fake chicken, sausage, or other faux meat.
“If [Kellogg] were smart and they were cynical, they’d say ‘our job is to raise money for Kellogg stockholders. Let’s spin this thing out and capitalize on this bubble,’” Arends said. “If you have an operation in that business, this is a great chance to cash in either through an IPO or to sell it. If someone was going to offer Kellogg even 10 times sales for Morningstar — as opposed to 50 times sales for Beyond Meat — you’re looking at $4 billion. This is a huge profit.”
But according to Arends, Morningstar’s value pales in comparison to Wall Street’s market value for Beyond Meat. While Arends calculates the Kellogg brand generates roughly $450 million each year, the Street slapped a $10 billion price tag on Beyond Meat, even though its forecasted annual sales are only $210 million. Still, Arends doesn’t see Kellogg spinning off its fake meat brand.
“The reality is, they are almost certainly not going to do this,” Arends notes. “If I were running Kellogg, I would fatten Morningstar up for an IPO. I would be thinking about growth branding, about repackaging, about trying to jump on this sudden popularity... It does seem to me that the management are asleep at the switch.”