- Beyond Meat was rated "sell" by Brian Holland of DA Davidson Thursday, its second-ever underweight rating from a Wall Street analyst.
- Wall Street analysts have been hesitant to venture beyond neutral ratings for the company. Of 10 that cover the stock, only one rates it "overweight" and two rate it "underweight." Seven are neutral.
- Holland says Beyond is valued like a tech company, and it's estimations for how much of the traditional meat market it could capture are too high.
- Watch Beyond Meat trade live on Markets Insider.
Beyond Meat was just given its second-ever "sell" rating from a Wall Street analyst covering the company.
Shares of the plant-based meat company fell as much as 6% on Friday after Brian Holland, a senior research analyst at DA Davidson, initiated coverage on Beyond Meat with a "sell" rating and a price target of $130. That's more than 15% below where the stock is currently trading at roughly $153 per share.
Holland's reasoning? Beyond Meat has overestimated the potential market for plant-based meat in the US, he said in a Thursday note.
"We acknowledge BYND should receive a considerable premium to Growth Staples peers," Holland wrote, "but the current "tech" valuation in our view ignores comparative barriers to entry & consumer efficacy that are inherently lower in Packaged Food." He arrived at his price target by applying a 50% premium to Growth Staples peers of Beyond.
Beyond Meat has had a blockbuster year. In May, the company listed on the public market and since it's IPO, shares have soared as much as 800%. In addition, the company has announced a number of high-profile partnerships with fast food restaurants - Beyond products can be found at Dunkin, Subway, and Del Taco, among others.
Wall Street is middle of the road
But strong year aside, Wall Street analysts that cover Beyond Meat have been hesitant to rate the stock 'buy' - currently, only Ken Goldman of JPMorgan has an overweight rating on shares.
Still, sell ratings are also rare. Of the 10 analysts that cover the stock, seven have neutral 'hold' ratings on shares, according to data from Bloomberg. Holland joins Erlan Abdikarimov of Freedom Finance as the only two analysts who say to sell shares of Beyond Meat.
Part of the hesitation by analysts is likely the newness of plant-based meat in the market. Beyond Meat is the first company of its kind to IPO and has a distinct first-mover advantage. In addition, plant-based meat is a new market that's forecast to grow swiftly Plant-based meat is currently a $14 billion market in the US, and analysts at Barclays estimate that it could balloon to $140 billion in the next decade.
In a new investor presentation released Thursday, Beyond Meat laid out its own estimates for the market share it hopes to capture from traditional meat. Plant-based milk has captured about 13% of the dairy milk market, and so Beyond's goal initially is to capture a similar share of the meat market. That's $35 billion of the $270 billion dollar meat industry in the US, according to Beyond Meat's presentation.
What is up for grabs in the meat market
Holland thinks that slice of the pie is too large. By his estimate, only about 70% of the US retail meat industry - $95 billion - could be addressable by plant-based alternatives in the future, and competition is growing.
He also thinks that Beyond Meat's calculations may be off because, in his view, the total market for plant-based meat in the US will be smaller than that of milk.
"We think there are fewer who have to find a solution to animal meat as compared to milk," he wrote. About 12% of plant based milk consumers who buy once or more per week make up 62% of consumption, he said
Going forward, Holland said that US foodservice and restaurant sales will continue to drive revenue for Beyond, to the tune of $1.1 billion by 2028. Still, his overall earnings outlook for the company lags the consensus - he expects Beyond to have a net revenue of $2.4 billion by 2028, where consensus is around $3 billion.
But that's a long way off for Beyond Meat. In its latest earnings release, the company reported $67.3 million in revenue.
Shares of Beyond Meat are up 516% year to date.
