Wells Fargo analyst John Baumgartner initiated coverage of Beyond Meat (BYND) with a Market Perform rating as he believes the company's growth potential is "fully discounted" into valuation and recommends waiting for increasing visibility regarding competitive entrants and market adoption before owning shares.

WAITING FOR BETTER VISIBILITY: In a research note to investors, Wells Fargo's Baumgartner started coverage of Beyond Meat with a Market Perform rating and $125 price target. While the analyst sees the company being well positioned to grow in the nascent plant-based meat alternatives space - a category strongly suited to benefit from generational change as consumers’ concerns pertaining to dietary health, environmental degradation and animal welfare increasingly drive food purchase decisions - he thinks Beyond Meat’s growth potential is "fully discounted" at current share levels and recommends waiting for increased visibility regarding competitive entrants and market adoption before owning shares.

Baumgartner believes investors "commonly extrapolate" the 15% value share of the U.S. milk market, held by plant-based beverages, to the $270B U.S. meat market, in arriving at 10-year sales of $40B for plant-based meat. Alternatively, he advocates a bottom-up approach which assumes a 6% volume share of the market and price parity with five-year average meat prices. Further, his "Seven Aspects of Restraint" provide a "sanity check" in forecasting market potential, as he arrives at a 2029 U.S. plant-based meat market of $12B-$15B. While he is bullish on plant-based as a secular growth opportunity, the analyst recommends conservatism and investing with a Growth-At-a-Reasonable-Price mentality.

COMPETITION: Wells Fargo's Baumgartner also pointed out that Impossible Foods is launching a similar plant burger while a range of companies, including Conagra Brands (CAG), Kellogg (K), Tyson Foods (TSN), and Maple Leaf Foods (MLFNF), are "seeking slices of the pie." Further, he expects a substantial push by private label and challenger brands given the likelihood that new discoveries pertaining to plant structures and processing introduce products superior to those in market today.

PRICE ACTION: In afternoon trading, shares of Beyond Meat have dropped about 4% to $126.16.