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In his introductory report, Baird suggested that the stock was a screaming buy.

Stocks of the legacy protein company Beyond Meat (NASDAQ:BYND) have beaten the market so far this year, but one analyst believes they still have a lot of upside. On Thursday, Baird analyst Ben Kallo initiated a fairly glowing coverage of the stock, with an outperform (i.e. buy) recommendation at a price target of $160 per share.

Beyond Meat is certainly on the road with a lot of tailwind. Since its initial public offering (IPO) in May 2019, the company has achieved an impressive number of sales deals, both in the retail sector with large supermarket chains and in the restaurant sector. At the end of last month, the company launched an e-commerce website for direct sales to consumers, which is sold in large quantities, opening another channel for the distribution of its products, which taste almost like real meat.

Beyond Meat’s share price rose slightly that day, in contrast to the remarkable decline in the broader stock market.

Buy better: Beyond Meat vs. Kraft Heinz

Which manufacturer of packaged food has more leeway?

Beyond Meat (NASDAQ:BYND) and Kraft Heinz (NASDAQ:KHC) represent two very different ways to invest in packaged food. Beyond Meat, which went public last May, attracted growth-oriented investors with brisk sales of its vegetable meat products. Kraft Heinz struggled with sluggish demand for its aging brands, but some value-oriented investors saw this as a turning point.

In the last 12 months, Beyond Meat’s stocks have decreased by almost 30%, while Kraft Heinz’s stocks have increased by more than 30%. Does this gap suggest that investors are more impressed by Kraft Heinz’s turnaround prospects than by the growth potential of Beyond Meat? Let’s take a closer look at both companies to find out.

Is Beyond Meat’s growth sustainable?

Beyond Meat has experienced dizzying growth in recent years, with revenue rising 170% in 2018, 239% in 2019 and 96% to $210.4 million in the first half of 2020, even as the COVID 19 crisis closed companies.

The company attributes its growth primarily to partnerships with restaurants and retailers such as Yum Brands, TGI Fridays, Subway, Starbucks and Walmart, which quickly increased its popularity with mainstream consumers.

Beyond Meat is not profitable, but its net losses have decreased in 2018 and 2019. For the first six months of 2020, net loss decreased to $8.4 million from $16.1 million in the prior year. The company has not issued a full year guidance, but analysts expect its revenues to increase by 60% and decrease to its first full year profit.

For the 2021 financial year, Wall Street expects Beyond Meat’s revenues to increase by 52% and profits to almost quadruple. These prospects are rosy, but Beyond Meat continues to face intense competition from rivals such as Impossible Foods, valued at $4 billion earlier this year, and meat packaging giant Tyson Foods, which began selling plant-based products last year.

Can Kraft Heinz bring about a turnaround?

Kraft Heinz brought back some bulls last year, but his stock has decreased by almost 60% in the last three years. Kraft’s organic sales declined by 1% in 2017, grew by less than 1% in 2018 and fell by 2% in 2019. The Adjusted EBITDA margin decreased from 29.8% in 2017 to 27% in 2018 and then contracted again to 24.3% in 2019.

Kraft’s sales declined as consumers focused on healthier foods and cheaper private label competitors. The company sacrificed its margins by lowering its prices, but the desperate move failed to boost organic sales. The company also took large write-downs on its weaker brands and cut its dividend.

On a positive note, Kraft is now led by a new CEO and the accounting problems of last year have been solved. Its organic revenue grew by 7% in the first half of 2020 due to pandemic-related purchases as its Adjusted EBITDA margin increased annually from 24.5% to 25.1%.

Kraft has not issued a forecast for the year as a whole, but analysts expect his sales to increase by 3% while his profit will fall by 10%. In 2021, analysts expect revenues and profits to fall by 2% and 3% respectively – indicating that the pandemic-related increase was only temporary.

One growth share vs. one value share

Although Beyond Meat has struggled with difficulties over the last 12 months, it still generated a return of almost 400% for its IPO investors. Investors are still paying a premium for its growth: the stock is trading at almost 11 times the estimated turnover for next year, and more than a thousand times its forward income.

Kraft Heinz, on the other hand, trades at only 14 times the profit from forward transactions and pays a dividend yield of 4.6%. This low valuation and the high yield could serve as a safety net, but the enthusiasm for the share could wane once the pandemic is over and its old problems return.

Beyond’s ability to nearly double its revenues during the pandemic is impressive and its growth could accelerate and exceed expectations once the crisis is over. Kraft is simply not that attractive because many of its competitors are achieving more consistent growth while paying comparable dividends.

Source: (fool.com)