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Beyond Meat Gets Beefier as Competition Heats Up

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Beyond Meat (BYND - Free Report) stock faltered this week as Tyson (TSN - Free Report) , the established meat producer, jumped into the space with meatless chicken nuggets and blended (with beef, pea protein and other ingredients) patties and sausages. It’s also claiming that the burgers are healthier because they contain fewer calories and saturated fat.

Tyson must be regretting the fact that it dumped its 6.5% stake just before the company’s IPO because the stock has appreciated beyond anyone’s wildest imaginations. Tyson must have sold its stake because it believes its products will be more appealing to consumers (which it can be for some), but the meatless meat market is obviously much bigger than anticipated.

Tyson is targeting the segment of consumers that wants to lower meat consumption but not do away with it entirely. It can have a product line or two to see how this market performs and even make losses for a while, given its size and reach. Since this is the primary market that Beyond Meat is targeting as well, there is some reason for concern. Especially since the blended category might be more effective at making inroads into the meat-eating segment (taste will determine this).

But Beyond’s focus on creating the most nutritious and attractive product will reap dividends. For example, the company’s saturated fats come from coconuts and cocoa butter, both very healthy options. It has also tweaked the patty formula to include moong beans and rice, so it offers all nine essential amino acids for a more complete protein. An apple extract addition will facilitate browning on the grill. This new version is likely to hit shelves in weeks, in time for the cook-out season.

It’s also a fact that large meat producers looking at this market actually validates it. Other than Tyson, Cargill has an investment in meatless producer Memphis Meats and Yum Brands’ (YUM - Free Report) KFC is selling a meatless chicken product in the UK. What's more, none of this is a surprise. The increased interest in the space and the entry of new players merely goes to show that the market is in expansion mode.

While no one expects the meat market to go away, or even shrink materially any time in the near future, this expansion will continue as peoples’ tastes and preferences continue to evolve.  

Peoples’ reasons for choosing meat alternatives aren’t the same. While some are concerned for the environment, others are concerned about animal welfare, some are concerned about health and for others it’s a combination of factors. So it’s impossible to guess what this market might ultimately look like. But Beyond’s total addressable market is slightly larger because it also includes the 5% share that goes to vegans/vegetarians (although some in this group would consider "meat-like" as revolting).

At any rate, all analysts are upbeat about the company and the segment although none have a buy rating on it. That’s because of the valuation that just doesn’t reflect the still-low revenues (the 215% growth in the last quarter comes off a very small base) and lack of profitability at the company.

So while Beyond expects to achieve EBITDA breakeven this year (Read more: Investors Ignore Analyst Warnings, Pile Into BYND Stock), and it will likely continue to see very substantial revenue increases in the domestic market and abroad (at least double digits over the next 5 years, in line with the market), it’s still hardly comparable with the leading meat producers.

Beyond Meat has a Zacks Rank #3 (Hold). Zacks #2 (Buy)-ranked Campbell Soup Company (CPB - Free Report) , Celsius Holdings (CELH - Free Report) and Flowers Foods (FLO - Free Report) are therefore better buys at the moment.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.



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