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One of Wall Street's biggest concerns about the shares of Beyond Meat Inc. is that current valuations limit potential earnings, but the odds are now "very high," which will soon be ironically settled by the bears. .
Beyond Meat investors got what they expected Thursday, while McDonald's Corp. announced that it will begin testing a hamburger burger in Canada with a herbal pancake made by Beyond Meat later this month. This sent the stock
BYND, + 11.58%
up 12% on heavy volume in afternoon trading
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Jefferies analyst Kevin Grundy said the partnership could potentially increase Beyond Meat's (BYND) sales significantly if it were eventually rolled out beyond the testing phase for McDonald's 38,000 restaurants around the world.
Mr. Grundy explained that if Beyond Meat's pastry shops passed the test and accounted for between 1% and 6% of the McDonald's beef volume in the United States, they could increase Beyond Meat's annual sales by $ 50 to $ 285 million.
While McDonald's
MCD -0.01%
The announcement "is what the bulls were waiting for," Grundy said. It can not recommend the purchase of the security because its valuation keeps it on the sidelines. He reiterated the conservation rating he had in stock since the beginning of his hedge and maintained his stock price target at $ 152, nearly 2% below current levels.
D. A. Holland's Holland Brian Holland recently wrote to customers that a Beyond Meat-McDonald announcement would not change his bearish view of the title. His concern that appraisals overestimate the total addressable market for herbal meats is what led him to rate the underperformance of the title, with a target price of $ 130.
Of the 11 analysts surveyed by FactSet covering Beyond Meat, seven are neutral, two bulls and two bears. The average price target of $ 150.70 is 2.7% lower than current levels.
Even though valuations may already be relatively high, this does not mean that the stock can not keep going up – a lot.
Ihor Dusaniwsky, general manager of predictive analytics at financial analyst firm S3 Partners, said: "There is a good chance that several million shares of short sellers will cover their positions and further increase the price of the action of BYND ".
Do not miss: Short sellers are not bad, but they are misunderstood.
He said that short-term interest or downside bets on Beyond Meat shares, as a percentage of the float – the shares available for trading – are about 41.6%. This far outweighed the most out-of-stock values in the packaged food and meat sector, as well as interest in percent free float for Hormel Foods Corp.
HRL, + 0.55%
was 13.9% and for Campbell Soup Co.
CPB + 0.30%
is 11.6%, according to S3 data.
Dusaniwsky said the cost of borrowing Beyond Meat shares to be sold short was the highest of any stock in the world, with more than $ 50 million in short-term interest even before Thursday's takeover .
Borrowing costs on existing Beyond Meat shorts were annualized by 141.1% until Wednesday. The next summit was 73.4% for the shares of Zoom Video Communications Inc.
ZM, + 0.19%,
followed by 70.4% for PagerDuty Inc. shares
PD + 4.05%
and 66.4% for the shares of Tilray Inc.
TLRY, + 0.41%.
Loan rates for Hormel and Campbell shares were 0.3%.
So even though the short sellers made $ 164 million mark-to-market profits from September to Wednesday, they had to pay $ 68 million in loan financing costs to obtain these short films, according to S3 data. And with the rise in shares on Thursday, short sellers are suffering estimated market value losses of $ 81 million that day and about $ 731.6 million this year.
The stock has risen 135% since closing at $ 65.75 on the first day of trading on May 2nd. In comparison, the Renaissance IPO Exchange Traded Fund
Initial Public Offering, -0.79%
lost 7.5% and the S & P 500 index
SPX, -0.24%
gained 2.2% over the same period.
The high cost of borrowing is explained by the supply, since almost all the loanable stock has already been loaned, said Dusaniwsky. And as these rates were steadily increasing, the loan costs on batches of 1,000 to 25,000 shares were between 300% and 400% early Thursday.
Among the biggest concerns of bears, however, it is not that loanable shares are rare, but that reminders begin. Basically, bulls that held stocks available for lending started to take profits, which means that the stock bears were borrowed to be able to sell them short, forcing them to cover their shorts earlier than they were. They might not wish it.
"[W]As rising market losses increase, as stock lending rates rise and equity recalls hit the street, the likelihood of a tight tightening is very high Dusaniwsky wrote in a research note. "If the course of BYND's action continues on its upward trajectory, it will turn into a short-press" whopper. "
The assessment was not the only Wall Street concern about Beyond Meat
The valuation may have been one of the main concerns of investors in Beyond Meat, but it was not the only one.
Another was the company's ability to respond to demand. Although the company stated in its latest quarterly report to the Securities and Exchange Commission that it had "significantly increased" its production capacity, "we could experience a production backlog in relation to customer demand if our growth rate exceeds our expectations. "
Do not miss: Beyond meat becomes public with a bang: 5 things to know about the manufacturer of herbal meat.
Jeffrey and Grundy helped to dispel this concern, saying one of McDonald's partners with Beyond Meat is that his company has the "production capabilities and production capabilities to meet its goals." [McDonald’s] asks if the test is successful and stimulates a nationwide deployment. "
Another concern is that Beyond Meat does not pass the McDonald's test after
QSR -0.73%
Tim Hortons has recently left its offer of limited burgers beyond the meat expire in some of its restaurants.
However, J.P. Morgan's Ken Goldman recently noted that Beyond Meat's breakfast sausages were prepared at most Tim Hortons restaurants until the end of the year. "Since Tim Hortons is largely a breakfast [quick service restaurant]Lunch is a much less important part of the company's menu. The news about sausages is gradually positive and at least partially offsets news about hamburgers, "wrote Goldman in a note to customers.
Goldman is one of the two bulls of Beyond Meat, as he attributes a price target of $ 189 to the overweighting of the stock.
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