By Tomi Kilgore, MarketWatch
One of Wall Street’s biggest concerns about Beyond Meat Inc.’s stock is that current valuations limit potential gains, but the odds are now ‘very high’ that problem will be fixed soon, ironically, by the bears.
Beyond Meat investors got what they were waiting for Thursday, as McDonald’s Corp. said it will begin testing in Canada a burger with a Beyond Meat-made, plant-based patty later this month. That sent the stock /zigman2/quotes/211617595/composite BYND -0.71% surging 11.6% to $154.34 on heavy volume.
Jefferies analyst Kevin Grundy said this partnership has the potential to significantly boost Beyond Meat’s (BYND) sales, if it is eventually rolled out beyond the testing phase to McDonald’s 38,000 restaurants worldwide.
Grundy said if Beyond Meat’s patties pass the test, and they eventually account for 1% to 6% of McDonald’s beef volume in the U.S., it could add anywhere from $50 million to $285 million to Beyond Meat’s annual sales.
While McDonald’s /zigman2/quotes/203508018/composite MCD +3.04% announcement “is what bulls have been waiting for,” Grundy said he can’t recommend buying the stock as valuation keeps him on the sidelines. He reiterated the hold rating he’s had on stock since he initiated coverage, and kept his stock price target at $152, which is 1.5% below Thursday’s closing price.
D.A. Davidson’s Brian Holland wrote in a recent note to clients that a Beyond Meat-McDonald’s announcement wouldn’t change his bearish view on the stock. His concerns that valuations overstate the total addressable market for plant-based meats is what made him rate the stock underperform, with a $130 stock price target.
Beyond Meat did not respond to a request for comment.
Of the 11 analysts surveyed by FactSet that cover Beyond Meat, seven are neutral on the stock, two are bullish and two are bearish. The average price target of $150.70 is 2.4% below current levels.
Although valuations may already be relatively high, that doesn’t mean the stock can’t keep rallying — a lot.
Ihor Dusaniwsky, managing director of predictive analytics at financial analytics firm S3 Partners , said “there’s a good chance that there will be several million shares of short sellers covering their positions and driving BYND’s stock price even higher.”
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He said short interest, or bearish bets on Beyond Meat’s stock, as a percentage of float — shares available to trade — was about 41.6%. That dwarfed the next-most shorted stocks in the packaged foods and meats sector, as short interest as a percentage of float for Hormel Foods Corp. /zigman2/quotes/209170265/composite HRL -2.24% was 13.9% and for Campbell Soup Co. /zigman2/quotes/202107764/composite CPB -6.13% was 11.6%, according to S3 data.
Meanwhile, the cost to borrow the Beyond Meat stock so they can be sold short was the highest for any stock in the world with more than $50 million worth of short interest, Dusaniwsky said, even before Thursday’s rally.