JPMorgan sees the move in Beyond Meat's shares as overshooting the actual financial opportunity
Shares of Beyond Meat (BYND) are on the rise on Tuesday after the company announced a joint venture with PepsiCo (PEP) to develop snack and beverage products made from plant-based protein. Commenting on the PLANeT Partnership, Oppenheimer analyst Rupesh Parikh told investors that he suspects the JV is unlikely to be impactful to Beyond results for "at least a few quarters," but called the deal "another attractive longer-term driver."
BEYOND, PEPSICO JOINT VENTURE: PepsiCo and Beyond Meat have announced they will form The PLANeT Partnership, a joint venture to develop, produce and market snack and beverage products made from plant-based protein. The joint venture will leverage Beyond Meat's technology in plant-based protein development and PepsiCo's marketing and commercial capabilities to create and scale new snack and beverage options, the companies said. Financial terms of the partnership were not disclosed. Joint venture operations will be managed through a newly created entity.
'ATTRACTIVE LONG-TERM DRIVER': Commenting on the news, Oppenheimer analyst Rupesh Parikh told investors that he suspects the joint venture is unlikely to be impactful to Beyond results for "at least a few quarters," but calls the deal "another attractive longer-term driver." With shares up considerably on Tuesday, Parikh sees "a tricky setup from here" given what are viewed as challenging fundamentals and increasing competition in its retail segment along with continued difficulties on the food-service side. Parikh has a Perform rating and no price target on Beyond Meat shares.
Meanwhile, William Blair analyst Jon Andersen kept a Market Perform rating on Beyond Meat after the joint venture announcement. For Beyond Meat, access to PepsiCo's global marketing, brand building, and go-to-market systems will allow for the creation of new product lines in new categories, Andersen highlighted. For PepsiCo, access to Beyond Meat's plant-based protein technologies will enable their use in core product segments such as snacks and beverages, while forwarding the goal to advance a more sustainable food system, he added. His thesis remains that Beyond Meat is a "unique growth opportunity" due to its "vast" addressable market and "quality" plant-based protein.
MOVE HIGHER SHOULD EVENTUALLY BE 'FADED': JPMorgan analyst Ken Goldman views the news as an "incremental positive," but questions how big the market size is for alt-dairy and alt-pork beverages and snack. While he "would fade this news," Goldman admitted that "maybe today (or even tomorrow) isn't the best time to do it" given the move is still forcing shorts to cover.
The analyst acknowledged that any time a relatively small company can partner in any way with a global behemoth like PepsiCo, "it’s usually good news." However, the move in Beyond's shares "overshoots the actual financial opportunity," he contended. Goldman, who thinks that "eventually... today's news will be properly contextualized," keeps an Underweight rating on Beyond Meat shares.
Wells Fargo analyst John Baumgartner also reiterated an Underweight rating on Beyond Meat shares following the company's announcement of the joint venture. The analyst believes the deal doesn't change Beyond's near-term fundamental trajectory for growth and he doesn't expect related incremental distribution for Beyond's core products. While plant-based snacks may "prove incremental to some extent" longer-term, Baumgartner would expect economics to likely be inferior to anything exclusively developed. While he would stick with a short position, he acknowledged the short-term "pain created by newsflow overtaking fundamentals" given the short interest at 38% of float in market. Baumgartner added in his note that "no commercially viable products exist at this point" and he does not expect an acquisition of Beyond by PepsiCo.
PRICE ACTION: In afternoon trading, shares of Beyond Meat have gained 20% to $190.59, while PepsiCo's stock has advanced about 1% to $140.15.