What happened
Shares of planted-based "meat" purveyor Beyond Meat (BYND +4.62%) got chopped up on Monday after analysts at Piper Sandler downgraded the stock from neutral to underweight -- and cut their price target on the stock by more than 40%, to just $29 a share.
Beyond Meat stock is down 3% as of 11:30 a.m. ET in response.
Image source: Getty Images.
So what
In a report out last week, investment bank BTIG described the sales performance of McDonald's McPlant burger (made by Beyond Meat) as "underwhelming" and lacking "evidence to support a national rollout in the near future." Today, Piper Sandler is echoing those worries, and adding some more of its own, in a report covered by StreetInsider.com.
Beyond Meat is burning cash, warns Piper, and has "no clear path to positive [earnings before interest, taxes, depreciation, and amortization]." Although the company's goal of "lowering prices below that of animal protein ... by 2024" are admirable, an inflationary environment means that this will probably hurt pricing for Beyond Meat more than it helps sales volumes.
For this reason, Piper is cutting its estimates for both 2022 and 2023 sales and also lowering the multiple the analyst thinks investors will pay for those sales, given slower growth, less profitability, and a weak balance sheet at Beyond Meat.
Now what
Long term, Piper Sandler seems open to being convinced that the stock is a buy. If prices do come down below those of real meat, the analyst opines that since 31% of consumers surveyed say they'd be willing to give plant-based meat a try if it was cheaper than real meat, "with Beyond's historical ~45% repeat rate, this would imply ~15% volume lift."
But given the banker's expectation that it would take "large price cuts" to get prices down below those of real meat, Piper ultimately concludes that the gains in volume would "still not be enough to offset the large price cuts, resulting in a potentially large net sales decline."
And that's a sell in Piper's book.
