McDonald's could be the key to $1 billion in sales for Beyond Meat, UBS says

Plant-based protein is all the rage this year, and pure-play Beyond Meat (BYND) could see revenue hit $1 billion if it focuses on its foodservice partnerships, according to UBS analyst Steven Strycula.

Beyond Meat derives half of its revenue from retail and the other half from foodservice. Strycula argues that in order for Beyond to hit $1 billion in foodservice sales, the alternative-meat producer needs to add 120,000 units. Beyond currently has 23,000 foodservice units that generate approximately $7,000 in annualized sales.

“We see two sources for incremental foodservice growth. First, partner with more national quick service restaurants,” Strycula said in a note Monday. “We view McDonald’s, Jack in the Box, Five Guys and Wendy's as the largest potential U.S. burger chain partnerships. Second, to increase same-door restaurant productivity via new menu items and greater awareness.”

Beyond Meat partners with McDonald’s (MCD) in Canada to test out the “P.L.T.” But, Strycula says that a partnership with the burger giant in the U.S. is critical for foodservice growth. In order to analyze the potential growth opportunity related to a McDonald’s-Beyond Meat partnership in the U.S., UBS interviewed Burger King restaurant owners across over 350 stores and conducted McDonald’s Canada industry checks to understand the success of the Burger King Impossible Whopper.

What UBS found is that McDonald’s in Canada sells roughly 20 to 30 P.L.T. sandwiches per day, but stores that are located near a younger demographic are selling upwards of about 100 P.L.T.s per day. Meanwhile, Burger King’s franchisees explained that the Impossible Whopper has not cannibalized sales of the original Whopper. Store owners said that they were selling 230 regular Whoppers on average and about 40 Impossible Whoppers per day.

The McDonald’s partnership alone could create a $300 million revenue opportunity, Strycula estimates. In the framework, he assumes that McDonald’s would sell about 50 burgers per day to create and annualized volume estimate. Then he applied a 10% volume-based purchase discount for McDonald’s versus Beyond Meat’s average foodservice revenue per pound. “Under this framework, we [estimate] BYND would earn ~$5 revenue per lb, which computes $300+ million under a single-source model.”

The UBS framework assumed that McDonald’s would source exclusively through Beyond Meat for its U.S. system. Strycula noted that McDonald’s actually rarely relies on singular sourcing and typically sources from two suppliers.

Strycula has Neutral rating on Beyond Meat stock with an $85, 12-month price target, which represents a 14% move higher from current trading levels.

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Heidi Chung is a reporter at Yahoo Finance. Follow her on Twitter: @heidi_chung.

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