Beyond Meat’s first-mover advantage will result in an enduring market leadership position

Business Strategy and Outlook

Beyond Meat is a pioneer in the plant-based meat, or PBM, industry, offering the first burger to look and taste like meat, although it was soon followed by Impossible Foods and many others. Given the rapidly changing marketplace, although it is too early to tell if Beyond’s first-mover advantage will result in an enduring market leadership position.

However, it is still optimistic on the prospects for the meat like PBM market. It is expected that a primary growth driver to be the 20% of consumers willing to adjust their habits to benefit the environment, as Beyond’s products emit 90% less greenhouse gases and require 93% less land, 99% less water, and 46% less energy to produce than their meat equivalents. The PBMs will be very successful abroad, in China and India in particular, the world’s two most populated countries, each with 1.4 billion people. The products offer a great solution for China, which does not have enough arable land to feed its huge population, and a great fit for India’s large vegetarian population. Both countries are highly amenable to the products, with surveys showing 96% of China’s and 94% of India’s populations are likely to try the products, compared with 75% of U.S. consumers. It’s expected the global PBM market will grow from $6 billion in 2021, according to Euromonitor, to $31 billion by 2031 (a 19% compound annual growth rate), as PBMs grow from 1.1% of the ground meat market to nearly 5%. The model Beyond’s market share is increasing from 8.4% in 2021 to 12% in 2031 as PBMs gain a larger share of the overall meat category and Beyond’s brand continues to win with consumers, given its strong performance in taste tests and ongoing R&D investments. Beyond is the global preferred supplier of McDonald’s McPlant patty (expected to launch in various countries in 2022-24) and will co-create products with Yum Brands to be used at KFC, Pizza Hut, and Taco Bell across the globe. It is expected that these deals will collectively result in over $200 million in incremental annual revenue by 2025, supporting $72 fair value estimate for Beyond Meat

Financial Strength

In March 2021, Beyond issued $1 billion in 0% coupon convertible notes that expire in 2027. This should provide adequate liquidity until the firm generates positive free cash flow, which is expected to occur in 2026. As of March 2022, Beyond held $548 million cash, which should be sufficient to meet its needs in 2022, specifically about $230 million to fund operations and $50 million in capital expenditures. However, if demand for Beyond’s products falls short of the forecast, or costs exceed the expectations, Beyond could opt to issue additional debt or shares, which could dilute current shareholders. It is continued to expect capital expenditures to be the primary use of cash, as the company will spend a significant portion of sales to build capacity in order to meet growing demand. But the level of investment should moderate from 2021, when Beyond invested $136 million (29% of sales) to build capacity ahead of product launches with McDonald’s and Yum Brands. In 2022 and beyond, it is expected that the capital investments between 6% and 8% of sales annually for the remainder of 10-year explicit forecast (still above the average for packaged food peers as the firm continues to expand capacity). The firm will not initiate a dividend over the next 10 years, but it is expected there will be sufficient cash on hand for moderate share repurchases, which is a model beginning in 2028. It can be viewed this as a prudent use of cash when shares trade below the assessment of its intrinsic value

Bulls Say’s

Plant-based meats should continue to gain share from traditional meat, driven by significant environmental benefits and consumers’ shift away from red meat. Beyond Meat should be a major beneficiary, given its first-mover advantage and strong performance in taste tests.
Europe and Asia represent large opportunities for Beyond, where consumers are more favourable to PBMs than in the U.S., and Impossible Foods is banned in Europe, as its products contain GMOs.
New deals with McDonald’s and Yum Brands should be material catalysts in 2022-24, representing over $200 million in sales

Company Profile

Beyond Meat is a provider of plant-based meats, such as burgers, sausage, ground beef, and chicken. Unlike other vegetarian products, Beyond Meat seeks to replicate the look, cook, and taste of meat, is targeted to omnivores and vegetarians alike, and is sold in the meat case. The products are widely available across the U.S. and Canada and in 83 additional countries as well. International revenue represented 31% of 2021 sales. The firm’s products are available in retail stores and the food-service channel. In 2019, before the pandemic struck, sales were evenly split between these two channels, although mix stood at 70% retail/30% food service in 2021.

(Source:MorningStar)

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