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What’s In It For Beyond Meat (BYND) In The Pepsico (PEP) Deal?

Together with PepsiCo Inc. (PEP), Beyond Meat Inc. (BYND) will produce snacks. A new distribution platform (13 percent of the market) has been discovered by the world’s largest business in the artificial meat sector: ready-packaged snacks. The arrangement does not yet include any financial specifics, but the contract is very likely to be enforced. The joint venture is named “PLANeT”, which alludes to environmental issues and the fact that Beyond Meat is made from raw vegetable materials. From the declaration, it follows that this is not just a play on words: suppliers promise that with the reuse of water, their vegan raw materials are processed in a waste-free manner. Following the news, Beyond Meat shares soared by almost 18% on Tuesday.

The new project’s environmental friendliness is not the only explanation for such a quick consumer response. The worst aspect of Beyond Meat’s sector entails higher manufacturing costs than meat farmers and, as a consequence, higher prices than natural meat. Snacks such as fried chicken, chips, or bites of dried meat have a small meat share in their final cost (compared to semi-finished products). The cost of marketing and logistics is 70-80 percent of the price of snacks. In this respect, substituting more costly artificial meat for natural meat (the disparity in the cost of raw materials is around 20 percent) would lead to a 4 percent price rise. And, considering PepsiCo’s delivery capacities, such snacks might not be more pricey than normal.

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It is worth adding that the company extends its distribution network more rapidly than its rivals. A cooperation deal with Taco Bell, part of the vast ownership of Yum Brands fast-food restaurants, was signed only a month ago (among other things, it owns the KFC and Pizza Hut chains). Against this backdrop, Beyond Meat’s shares have risen by a total of 42 percent since the end of December, far exceeding their fair value. Also after the Wednesday trading, which was nearly 3 percent to $192.08, the company’s shares appear visibly overheated. We suggest waiting for the next major profit-taking to invest in Beyond Meat, which may reduce the prices to $140 apiece or even below. The fact that more than 40 percent of the company’s trading shares are now protected for short sales is in favor of an early crash.

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