The Ratings Game

Jan. 23, 2021, 11:06 a.m. EST

Beyond Meat downgraded as restaurants turn their focus to chicken sandwiches

Tonya Garcia

Beyond Meat Inc. (NAS:BYND) was downgraded to neutral from buy at BTIG, with analysts citing the focus on chicken sandwiches at restaurant chains.

“While we continue to believe in the long-term trend toward plant-based meats in the grocery and foodservice channels, we expect restaurant operators will remain focused on throughput over menu innovation, limiting adoption and sales growth through the foodservice channel this year,” wrote analysts led by Peter Saleh.

“Menu innovation for the first half of this year (at the very least) is focused on chicken and not beef for many restaurant concepts, with the introduction of several chicken sandwiches across the quick-service space.”

Since the beginning of the year, McDonald’s Corp. (NYS:MCD) , Shake Shack Inc. (NYS:SHAK) and Yum Brands Inc.’s (NYS:YUM) KFC have each announced a new chicken sandwich.

Read: McDonald’s, Shake Shack among the restaurant chains kicking off 2021 with new menu additions

This hasn’t slowed down Beyond Meat, which has a new partnership with another Yum Brands chain, Taco Bell. And Beyond Meat has announced it will be on the menu at Jindingxuan, a 24-hour Chinese food chain in Beijing. Jindingxuan is adding eight new dishes that feature Beyond Meat’s plant-based protein including salted egg yolk steamed plant-based meat cakes and fried lotus root bites.

See: Taco Bell partnering with Beyond Meat to create plant-based protein

Even with the continued developments, BTIG says international partnerships, especially those in Europe, will be constrained by the COVID-19 pandemic.

“Looking ahead to the balance of the year, we do not expect this sales channel to rebound until a vaccine is more widely available and international consumers return to their daily routines,” analysts said.

“Furthermore, we expect recent lockdowns to limit any sales upside in the near future.”

BTIG isn’t the only analyst group that has come to this conclusion.

“In the near term, we expect lingering COVID-19 headwinds to weigh on the shares as foodservice sales may experience pressure due to the recent surge in COVID-19 cases and colder weather (limits outdoor dining), while retail sales may not experience the same consumer stockpiling benefit Beyond Meat saw earlier in 2020,” wrote Arun Sundaram, equity analyst at CFRA Research.

CFRA rates Beyond Meat shares sell with an $85 price target.

Analyst groups have also called out Beyond Meat’s third-quarter earnings report in November, in which the company swung to a loss and reported just a 3% revenue increase.

“Our financial results reflect a quarter where for the first time since the pandemic began, we experienced the full brunt and unpredictability of COVID-19 on our net revenues and accordingly, throughout our P&L,” said Chief Executive Ethan Brown in a statement.

“Unlike the second quarter where record retail buying and freezer loading by consumers offset the deterioration of our foodservice business as COVID-19 stay-at-home and related measures set in, the long tail of retail stockpiling by consumers, coupled with continued challenges across the majority of our foodservice customers, led to Q3 results that were lower than we expected.”

Read: Grocery sales soared in 2020 due to COVID-19, but analysts forecast a 2021 crash back to Earth

BTIG says Beyond Meat has strong brand awareness and consumers are open to plant-based meats.

The Global Plant-Based Meat Substitute Consumer Survey conducted by UBS found that 53% of consumers polled in November across the U.S., U.K. and Germany had tried plant-based meats.

But Beyond Meat faces hurdles.

“While the company has made considerable gains with restaurant partnerships in recent years, we believe a rebound in sales growth could take longer than expected given continued disruption from COVID-19 and restaurants’ emphasis on greater efficiency and streamlined menus following the pandemic,” BTIG said.

Moreover, the company has a constant stream of new competitors and competing products in the alternative meat space.

This month, New Wave Foods says it’s launching plant-based shrimp made of sustainable seaweed and plant proteins. And European plant-based meat brand Heura says it is preparing for new product launches in 2021 after launching a new burger in 2020.

Don’t miss: Is cell-based meat the next big thing? Here are 5 companies leading the revolution

Eat Just Inc. announced in December that it received approval in Singapore to sell cultured chicken made with animal cells. Eat Just Inc. is already known for Just Egg, a plant-based egg product that can be found at grocers and through foodservice channels.

Beyond Meat stock has tumbled 18.5% over the past three months, but is up 14.7% for the last 12 months.

The benchmark S&P 500 index (S&P:SPX) has gained nearly 16% over the past year.

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