Beyond Meat Stock Surges More Than 50%. Why Wall Street Is Skeptical of the Company’s Plans.

After the market closed Tuesday, Beyond Meat posted fourth-quarter sales that were 8% lower than a year ago, and lost more money than analysts expected. Domestic sales plunged over 20% due to weakness in both retail and restaurant channels, despite growth in the international markets.

But investors seem excited about the firm’s cost-saving plans. While Beyond Meat’s sales guidance for 2024 suggests very little growth, gross margin is expected at the mid to high teens, compared to the negative 24% in 2023. The company expects to cut operating expenses by at least 25% to $170 million to $190 million.

“Our experts have told us that the company ‘needs to get in survival mode,’” said John Oh, an analyst at Third Bridge. “The cost-savings initiatives and manufacturing optimization efforts are crucial for Beyond Meat given where the sector as a whole is currently.”

The stock surged 48% on Wednesday to trade around $1. Coming into the session, it had fallen 16% this year, and 56% over the past 12 months.

But others on Wall Street are more skeptical. Beyond Meat’s outlook appears to be too optimistic, wrote Mizuho John Baumgartner in a Wednesday note. 

The guided earnings and gross margin would heavily rely on both price hikes—when demand is already weak—and aggressive expensive cuts, including marketing and potentially further layoffs. But the timing of this shifting strategy seems odd, says Baumgartner. 

Beyond Meat is facing challenging public perception as consumers doubt the health benefits of its products. Last week, the company just announced a new variety of plant-based burger made with avocado oil—marketed as healthier—that’s set to roll out this spring.

“The attempt to gain share of existing consumers from competitors in a declining market seems at odds with plans for price increases and limited elasticity,” wrote Baumgartner.

Even as short-term cash preservation sacrifices longer-term growth, it’s unlikely to reduce the company’s need for capital raises, according to Baumgartner. Persistent losses means Beyond Meat could burn another $100 million in cash in 2024, he wrote, and the company might even need to sell some assets for liquidity.

Baumgartner maintained an Underperform rating on the stock with a price target of $7.

BMO analyst Andrew Strelzik also cautioned that cost savings would not make the company’s longer-term adoption challenge go away. “While Beyond Meat is taking appropriate steps to adjust its cost structure, the stock’s reaction is disconnected from reasonable valuation assumptions,” he wrote in a Wednesday note. 

Strelzik has a Market rating on the stock with a price target of $10.

Write to Brian Swint at [email protected] and Evie Liu at [email protected]