Citi argues that the issues that impacted Q4 are mostly temporary
Shares of Beyond Meat (BYND) are trading higher on Tuesday after Citi upgraded the stock to Buy from Neutral. The firm's analyst believes sales and cost issues that impacted the most recent quarter are temporary. The stock had initially fallen after the market close on Monday after the plant-based food maker said it planned to raise $750M in a convertible notes offering.
'NEW-FOUND ENTHUSIASM': Citi analyst Wendy Nicholson on Tuesday upgraded Beyond Meat to Buy from Neutral with an $184 price target, up from $141. While the company reported a disappointing end to 2020, that was largely due to weak foodservice revenues and higher-than-expected overhead costs, Nicholson told investors in a research note. Nicholson considers the issues that impacted Q4 to be mostly temporary and sees much of the bad news, including the departing CFO and increased competition, as already well-known and largely priced into the stock.
The analyst added that she has a "new-found enthusiasm for the longer-term story" driven by Beyond's recent new partnerships with PepsiCo (PEP), McDonald's (MCD) and Yum! Brands (YUM). While details regarding Beyond's partnerships "are scant" and her new estimates "are really shots in the dark at this point," Nicholson thinks investors understand the challenges to the story and she expects top line momentum can get back on track once we are past COVID, she said.
WHAT'S NOTABLE: On Monday afternoon, Beyond Meat announced its intention to offer, subject to market and other conditions, $750M aggregate principal amount of convertible senior notes due 2027 in a private offering to qualified institutional buyers. Also on Monday, DA Davidson analyst Brian Holland raised the firm's price target on Beyond Meat to $145 from $133 and kept an Underperform rating on the shares. The analyst believes Beyond Meat will respond favorably to headlines and shrug off the near-term sales and EBITDA disappointment.
RECENT EARNINGS AND PARTNERSHIPS: Last week, Beyond Meat reported fourth quarter adjusted earnings per share and sales below the Street's expectations. A loss per share of (34c) and revenue of $101.94M was attributed to the "significant challenges we faced, primarily in our foodservice channel," as a result of the COVID-19 pandemic. The company did not provide guidance, other than to say that the pressures that weighed on sales are not likely to abate in the first quarter as foodservice locations remain closed and as Beyond Meat begins to lap consumer pantry-loading at the end of March.
In conjunction with its earnings report, Beyond Meat announced a three-year agreement to be McDonald's preferred supplier for the McPlant patty, a new plant-based burger being tested in select McDonald's markets globally. In addition, Beyond Meat and McDonald's will explore co-developing other plant-based menu items -- like plant-based options for chicken, pork and egg -- as part of McDonald's broader McPlant platform, the company stated. Beyond Meat also announced a global partnership with Yum! Brands to co-create and offer "craveable and innovative" plant-based protein menu items that can only be found at KFC, Pizza Hut and Taco Bell over the next several years. Beyond Meat previously said in January that it formed a snack partnership joint venture with PepsiCo.
PRICE ACTION: In morning trading, shares of Beyond Meat are up 1.5% to $148.53.