Beyond Meat is the plant-based meat leader now, but margins are at risk: UBS

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Beyond Meat Inc. is a leader in the rapidly growing plant-based meat space, but UBS analysts are concerns about margins, which could be at risk due to competition.

UBS initiated Beyond Meat BYND, +1.25%   at neutral with an $85 price target. Shares of Beyond Meat have lost more than 50% of their value in the past three months, with analysts saying the “stock valuation is full.”

The Invesco Dynamic Food & Beverage ETF PBJ, -0.31%   is down 4.4% for the past three months, and the S&P 500 index SPX, +0.03%   is up nearly 5% for the period.

“Beyond Meat is leading the charge to disrupt the $1 trillion-plus global animal meat industry,” UBS said.

“While we outline a robust revenue opportunity, we’re more cautious on Beyond Meat’s margin outlook as competition is intensifying, particularly from larger protein processors and packaged food peers who are likely to undercut Beyond Meat price points using excess capacity and a lower gross margin rate profile.”

See: Beyond Meat’s McDonald’s trial hasn’t been a ‘blowout,’ Bernstein analysts say

UBS isn’t the first research group to sound an alarm about large competitors siphoning Beyond Meat’s market share.

CFRA’s Arun Sundaram wrote in a note that Impossible Foods’ Impossible Burger is favored by many who think it tastes better.

And big food companies like Tyson Foods Inc. TSN, -0.95%  , Kellogg Co. K, +0.05%   , Hormel Foods Corp. HRL, +0.21%   and Conagra Brands Inc. CAG, -1.22%   are among the companies that are boosting plant-based meat brands in their portfolios.

Read: Beyond Meat initiated at sell as large competitors make gains in plant-based food

Kroger Co. KR, +0.26%  , just this week during its investor event, said it would introduce 58 plant-based items under its private label Simple Truth in 2020.

UBS estimates that Beyond Meat’s total addressable market for plant-based meat is about $1.2 trillion, with these products representing less than 1% share of the global market. In the U.S., the market is about $165 billion.

Thirty-six percent of respondents to a UBS survey said they have tried at least one plant-based meat product, a low figure, but of those that have tried, 57% make a repeat purchase.

UBS forecasts that Beyond Meat will reach $1.8 billion in sales by 2025, suggesting that the company will capture 13% of the U.S. plant-based meat market.

“[S]hould consumers prove less brand loyal and more price sensitive, Beyond Meat’s first mover advantage could fade and it could revert closer to commodity industry profit margins,” UBS said.