Investors Lose Appetite for Beyond Meats After COVID-19 Eats Profits

Beyond Meat, Inc. (BYND) shares added to Monday’s losses in extended-hour trading, plunging 22.44% after the plant-based meats company reported quarterly results that fell short of the mark as the pandemic crippled restaurant sales and consumers stockpiled less meat alternative products.

The company reported a Q3 loss of 28 cents a share, with the figure falling well short of analysts’ forecasts of a 5 cent per-share profit. Moreover, the bottom line declined from 6 cents a share in the year-ago quarter. Revenues of $94.4 million also came in below expectations but grew 2.7% on a year-over-year (YoY) basis. The substitute meat producer’s U.S. foodservice segment, which includes restaurants and corporate catering, weighed heavily on the top line, falling 11% as consumers opted to eat at home during the health crisis. However, sales growth of 40.5% in Beyond Meat’s grocery unit helped offset the decline.

“We experienced the full brunt and unpredictability of Covid-19 on our net revenues,” CEO Ethan Brown said in a statement accompanying the earnings call. “Unlike the second quarter, where record retail buying and freezer loading by consumers offset the deterioration of our food service business…the long tail of retail stockpiling by consumers, coupled with continued challenges across the majority of our food service customers, led to [third-quarter] results that were lower than we expected,” he added, per Barron’s.

Through Monday’s close, Beyond Meat stock has a market capitalization of $9.4 billion and trades up a whopping 107.49% on the year. Over the past three months alone, the shares have gained nearly 20%.

Wall Street View

In recent months, the company has copped a barrage of broker downgrades. Analysts have grown increasingly worried about rival players in the sizzling alternative meat space. Look for souring sentiment across the Street to continue after the disappointing Q3 earnings. Also, news that McDonald’s Corp (MCD) has launched a test of its own plant-based burger – the McPlant, could trigger additional re-ratings.

The stock currently receives 3 ‘Buy’ ratings, 1 ‘Overweight’ rating, 10 ‘Hold’ ratings, 2 ‘Underweight’ ratings, and 6 ‘Sell’ ratings. Price targets fluctuate from as high as $178 to as low as $55, with the median target pegged at $136. This represents a 16.5% premium to Monday’s extended hours closing quote at $116.73.

Technical Outlook and Trading Tactics

Since reaching a 52-week high in early October, the share price has retraced back below the 50-day SMA. On Tuesday’s expected weakness, active traders should pay close attention to the $121 level. This is where the stock finds a confluence of support from a multiyear horizontal trendline and the 200-day SMA. A price reversal in this area could trigger a return of bullish sentiment, leading to a retest of last month’s high at $197.50 or even a test of the all-time high (ATH) at $239.71.

Beyond Meat Could Enter Major Downtrend

Beyond Meat Inc. (BYND) sold off at the end of June in reaction to a media report claiming that McDonald’s Corp. (MCD) has ended trials of the company’s popular plant-based burgers in Canada. A wave of downgrades followed the news, which still hasn’t been confirmed or denied by either party. If confirmed, the fast-growing food producer could have trouble growing business in their North American markets, denying a much-needed revenue boost.

Beyond Meat Growing Headwinds

Experts have raised concerns about questionable ingredients in their meatless products, which are being marketed as a healthy alternative to beef and pork. As the Harvard Medical School pointed out in 2019, the Beyond Burger is heavily-processed with high levels of saturated fat, which give the product its meat-like flavor. It also uses ‘refined’ coconut oil to replace the meat fat, high on the list of ingredients that should be avoided to maintain healthy cholesterol levels.

Citigroup analyst Wendy Nicholson downgraded Beyond Meat to ‘Sell’ last week, noting the company is a “leader in the plant-based meat market, benefiting from a well-known brand that has been developed in both the refrigerated meat section of the grocery store and in food service locations.” She then cautioned “we expect the company to face both near-term pressure as a result of its exposure to the food service segment and longer-term pressure as the category becomes more competitive”.

Wall Street And Technical Outlook

Wall Street consensus has grown increasingly bearish on Beyond Meat, which is currently rated as a ‘Moderate Sell’, with 2 ‘Buy’, 5 ‘Hold’, and 6 ‘Sell’ recommendations. Price targets range from a low of $68 to a street high $173 while the stock is now trading nearly $20 above the median $112 target. This positioning warns the company will need positive catalysts to maintain the current price, or risk selling off into double digits.

The technical outlook remains highly guarded, with price action now situated below the midpoint of the trading range carved since the May 2019 initial public offering. It’s also trading perilously close to the 200-day EMA, which was mounted in May after a steep first quarter decline, with a selloff through 120 likely to set off a variety of sell signals. The stock could head into double digits if that happens, putting pressure on current shareholders.