Shares of Beyond Meat (BYND) are under pressure on Tuesday after JPMorgan analyst Ken Goldman downgraded the stock to Neutral after a 65% January rally. Meanwhile, a judge has ruled former partner Don Lee Farms proved the probable validity of its claim that Beyond Meat breached a manufacturing agreement. In a separate motion before a different Judge, the court granted Don Lee Farms' request to name Beyond Meat CFO Mark Nelson and two other executives in its fraud claims, which allege they intentionally doctored and omitted material information from a food safety consultant's report.
MOVING TO SIDELINES: In a research note to investors, JPMorgan's Goldman downgraded Beyond Meat to Neutral from Overweight and lowered his price target on the shares to $134 from $138. With the shares up 65% this month, the analyst sees a "more balanced risk/reward outlook." Further, with a "variety of optimistic news stories" baked into the stock, Goldman argued that it is prudent to head for the sideline once again.
The analyst noted that so far this month, Beyond Meat's stock has benefited from the CEO of Impossible Foods acknowledging that his supply chain was not yet in a position for his company to partner with McDonald's (MCD), McDonald's expanding its test of Beyond-supplied burgers in Canada, Starbucks (SBUX) saying it will add more plant-based foods to its menu, and Denny's (DENN) announcing an expanded partnership with the company.
The analyst continues to believe Street estimates for 2020 and 2021 are too conservative, but with only 7% upside to his December 2020 price target, he no longer sees a "compelling valuation argument." Goldman also highlighted that his downgrade is unrelated to "the stories about a legal conflict with a former partner." While he acknowledged that it "surely is an additional risk" to the stock price, he does not know how to “handicap its impact at this time.”
CFO NAMED IN FRAUD CLAIMS: A judge has ruled Don Lee Farms proved the probable validity of its claim that Beyond Meat breached its manufacturing agreement with Don Lee Farms. The Court issued a Right to Attach Order. In a separate motion before a different Judge, the Court granted Don Lee Farms' request to name Beyond Meat CFO Mark Nelson, Senior Quality Assurance Manager Jessica Quetsch and Director of Operations Anthony Miller in its fraud claims, which allege they intentionally doctored and omitted material information from a food safety consultant's report, and then delivered that doctored report to Don Lee Farms and affirmatively represented that it was the complete opinion of the consultant. The omitted portions discussed significant food safety issues at Beyond Meat's facility, according to Don Lee.
Previously, Beyond Meat lost motions to maintain confidentiality designations on their entire document production, trying to designate 147,000 documents confidential or highly confidential in order to try to keep its documents away from the public. Beyond Meat has also delayed producing documents regarding their co-packer, FPL Foods, by filing a motion for protective order in Georgia. The Court ruled in Don Lee Farms favor.
WHAT TO WATCH FOR INTO QUARTERLY RESULTS: Beyond Meat is scheduled to report quarterly results on January 28 after the market close. In the company's last earnings report, Beyond Meat raised its fiscal year 2019 revenue guidance to $265M-$275M from exceeding $240M. The company also said it sees fiscal year 2019 adjusted EBITDA approximately $20M.
Earlier this month, McDonald's said it was expanding the global test of its plant-based burger to include 52 restaurants in Southwestern Ontario, Canada starting January 14, for 12 weeks. The P.LT., which stands for Plant. Lettuce. Tomato., is made with a Beyond Meat plant-based patty that has been crafted exclusively by McDonald's, the company said in a statement. In a research note to investors last week, BTIG analyst Peter Saleh said he wonders if Beyond Meat could supply enough product should McDonald's want to expand its plant-based patty test throughout the U.S. While the analyst believes Beyond could produce enough product in the near-to-medium term to supply McDonald's restaurants in Canada, Saleh is less convinced about the company's potential to support McDonald's U.S. system, especially if demand grows.
Meanwhile, Beyond Meat's Executive Chairman Seth Goldman told China news agency Xinhua that the company hopes to enter the Chinese mainland market this year. "We haven't announced anything, but we are expected to do something this year," Goldman said on the sidelines of Retail's Big Show 2020, according to Xinhua.
PRICE ACTION: In morning trading, shares of Beyond Meat have dropped almost 4% to $120.36.
