Dividend Challenger Highlights: Week Of September 22

Introduction

The Dividend Champions list is a monthly compilation of companies which have consistently increased their annual dividend payouts, and the latest edition may be found here. However, since this list is only produced once per month, the data in it can quickly get out of date. Furthermore, with close to 900 companies on the list, the sheer amount of data can quickly become overwhelming. In this weekly series, I highlight recent and upcoming dividend related activity for companies holding Challenger (5-9 years) status.

In the data presented below, Yield is forward annualized and Years reflects the up-to-date streak, including dividends declared since the last edition of the Dividend Champions list.

Dividend Increases

In the past week, the following companies declared dividends which were higher than their previous payouts.

Last Chance to Buy

These companies have ex-dividend dates approaching. The following tables indicate the last day you can buy these stocks in order to be eligible for the upcoming dividend. Tables are sorted alphabetically by symbol.

Monday September 23 (Ex-Div 9/24)

Tuesday September 24 (Ex-Div 9/25)

None

Wednesday September 25 (Ex-Div 9/26)

Thursday September 26 (Ex-Div 9/27)

Friday September 27 (Ex-Div 9/30)

Money on the Way

The following companies have dividend pay dates in the upcoming week (Tuesday through the following Monday). Check if you want your DRIPs to reinvest at these yields…or take the cash and go have a steak dinner!

Conclusion

I hope you found this article useful. Please let me know if you have any ideas for improving the format or data included in this series.

Looking for more in depth analysis of high quality dividend stocks? Check out the Dividend Kings marketplace service!

Disclosure: I am/we are long PEGI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Beyond Meat’s Revenue Needs To Grow 35% A Year

Whenever 10 out of 10 SA articles on the same stock are on the same side, it is always worthwhile to look at the other side of the story. In the case of Beyond Meat (BYND), just based on the look of how the stock has been moving, it can be easily taken as an overvalued, bubble stock. However, Beyond Meat also delivered a 287% year-to-year revenue growth in the first quarter out of the IPO gate. There should be some kind of symmetry between the outrageously large stock price movement and the extraordinarily high revenue growth. Only beyond that symmetry, BYND is said to be mispriced.

How Much Growth Already Priced In?

In order to see whether investors are overly optimistic, valuable information can be extracted from the stock price. The thought process is if BYND’s shareholders are only interested in one financial metric, say revenue growth, at this juncture, they would use the best forecast of revenue growth rate to price the stock. Assuming investors are rational in using the information, the current stock price should reflect the market’s best current forecast of future revenue growth rates, or the fair value of a stock should be reached after you derive the best forecast for financials. If you agree with this logic, it stands to reason that if you are given a stock price, you should be able to reverse the process to find the growth rate behind that price. “There is always a growth rate behind every stock price.”

In terms of how to find the growth rate from a stock price, it becomes a technical issue to reverse engineer the evaluation process. To this end, I elect to use the typical “Sales Franchise Value Approach” (SFV) as shown below. At this point of time, BYND cannot be a more appropriate stock to use this approach because revenue is the number one metric that investors are watching intensely in order to prove Beyond Meat’s concept.

Note that the actual form of the evaluation model is not as important as the process to extract investors’ expectation of future growth rate embedded in the stock prices. To do that, use the actual current stock price and other known metrics, except the growth rate G, to plug in the equation. The sales growth rate being solved is the implied growth rate that investors used to come up for the current stock price. Using this process, BYND’s stock price today, $150, is a result of 35% revenue growth rate expected by investors.

The logic of this reverse engineering is that the current stock price has priced in 35% of future growth rate. If it is an overly optimistic expectation, the stock is overvalued. Accordingly, how to reach a conclusion whether the 35% expected growth rate is realistic requires further estimates of future revenue outlook. To this end, I look at the Street consensus of Beyond Meat’s near-term financial outlook.

Near-Term Improving Fundamentals

At this time, the Street consensus already has a positive outlook. The quarterly revenue is expected to break $100 million by 2Q 2020 with an annual growth rate of 40% (Figure 2A). These estimates should have included the current foodservice customers who already passed the testing stage (Table 1). Note that Beyond Meat is known to be volatile to the addition/deletion of its distributors. Just one or two distributor change will have a significant ramification on BYND’s prices.

However, just in recent days, many new customers expressed their plans to test Beyond Meat. That would include the sales from burgers in Tim Hortons, sausage patties in Dunkin’ Donuts, Aramark, and Uno. QSRs are also expected to join the testing group within the year. If you include the new revenue into the estimates, JPMorgan has an even more bullish forecast of annual growth rate of 50-60% by the end of 2021 (Figure 2AA).

Although it may not be on an investor’s mind right now, profitability is also expected to have a marked increase. Gross margin is set to increase from the high 20s to the low 30s in next few years. The improvement may reflect the company’s announced intention to reduce costs. EPS will turn positive after 2Q 2020 (Figure 2C). Thanks to the fact that BYND’s shareholders are more concerned with short-term revenue growth, free cash flow will not become meaningfully positive in the recent future (Figure 2D).

Dollar Takeaway in Channels and Velocity

A common metric used in retail franchise sales is the dollar takeaway in measured channels. This number is provided by Nielsen data which measures the direct sales of each of the distribution units for each company’s product. Over the last 13 weeks, Beyond Meat’s dollar takeaway in measured channels was up by 186% Y/Y, the highest in nearly three years (Figure 4). Furthermore, the increase in takeaways is mainly driven by the “velocity” sales per distribution point (Figure 5). The velocity increase would suggest that the Beyond Meat’s products are catching on with channels. More importantly, as the velocity often leads the actual change of the object, the recent surge of velocity in sales is a bullish sign for future sales.

Most Likely Long-Term Revenue Growth

Since Beyond Meat needs to pass the threshold of 35% long-term revenue growth rate to justify the lofty valuation, I will assess the likelihood of this scenario. For the last few years, Beyond Meat’s revenue has grown at an annual rate of over 250% in a plant-based industry environment of 9-18%. The Street has estimated that the forward growth rate is approximately 40% while JPMorgan has a higher estimate around 50-60% because it included some additional new commitments from known customers that were not covered by the Street estimates. Furthermore, if the pace of (large) foodservice customer acquisition keeps up and several global distributors, e.g., QSRs, are on board, coupled with the increasing velocity, the current estimate of the long-term revenue growth can be on the conservative side.

On the negative side, many large, well-known foodservice companies, e.g., Tyson (NYSE:TSN), Nestle (OTCPK:NSRGY), and Taco Bell, Kellogg (NYSE:K), Kroger (NYSE:KR), Conagra (NYSE:CAG), and Hormel (NYSE:HRL), all come out of their own brand of plant-based products. As they have a larger existing distribution channel in place and therefore can reduce the cost structure much easily than Beyond Meat, an emerging young company with only a single unproven product line to the consumer. I am also concerned by the low entry barrier for the plant-based foods. Many competitive brands have already come out at a better taste and a lower cost, ready to fight for this $140 billion plant-based protein market. You can say that Beyond Meat’s current 32% market share can be fragile in the long term. Considering all the information, the long-term revenue growth rate can be estimated somewhere between 40% and 60% with a higher probability toward the high end.

Takeaway

If BYND’s investors only use future revenue growth to price the stock, $150 is equivalent to say that investors expect the company can deliver a 35% annual revenue growth in the long term. Thus, I am looking for this 35% future growth in order to justify BYND’s seemingly hefty valuation. Given the many competing brands coming out of the market, the Street consensus revenue estimate has been cautiously restricted around 40%. Yet, considering that Beyond Meat just signed on several global large foodservice customers and expects many more, e.g., QSRs, to come, some have increased the growth estimate to 50-60% range.

The actual revenue growth rate may be further extended considering that the velocity of the sales has seen a marked increase in the recent period. A faster velocity is always a good sign because it often precedes a significant increase in actual revenue in the near future. Thus, it is very likely that the 35% threshold revenue growth rate can be easily exceeded. BYND at $150 is not overvalued.

That being said, it is very likely that there has been some irrational exuberance at work in BYND’s pricing. But considering that shares have fallen by 40% since the high on 7/26/2019, there should be little downside risk from this point on.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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