- Beyond Meat shares moved lower during Wednesday's session after DA Davidson downgraded the stock to Underperform with a $135 price target.
- Impossible Foods' price cuts have sparked concerns that Beyond Meat's pricing power could erode over the coming months.
- Technical indicators suggest that the stock could see more downside ahead over the coming sessions.
DA Davidson analyst Brian Holland said that Beyond Meat stock's 40%-plus run-up from news flow and short covering over the past month looks "overdone." In addition, the analyst believes that an extended COVID-19 timeline could push out the recovery in restaurant and food service sales, while the company's deal with PepsiCo, Inc. (PEP) is likely not worth $700 million to its top line.
Oppenheimer analyst also noted that price cuts by Impossible Foods could eliminate the pricing advantage that Beyond Meat enjoys in the meat alternatives market. Impossible Foods said earlier this week that it aims to be at price parity with regular meat and cut prices of its alternative meat patties by 20% at U.S. grocery stores as production ramps up.
Short covering refers to buying back borrowed securities in order to close out an open short position at a profit or loss. It requires purchasing the same security that was initially sold short and handing back the shares initially borrowed for the short sale. This type of transaction is referred to as buy to cover.
From a technical standpoint, Beyond Meat stock briefly extended its downtrend to close its gap from last month. The relative strength index (RSI) remains lofty with a reading of 60.23, while the moving average convergence divergence (MACD) appears to be topping out. These indicators suggest that the stock could see more downside if it breaks down from these levels.
Traders should watch for a breakdown from trendline support toward lower trendline and moving average support near $140.00 over the coming sessions. If the stock rebounds from its current support levels, traders could see Beyond Meat move to retest its reaction highs of around $200.00, although that scenario appears less likely to occur given the bearish sentiment.
The Bottom Line
Beyond Meat shares opened lower during Wednesday's session after DA Davidson downgraded the stock to Underperform with a $135 price target. In addition to its "overdone" rally, analysts are concerned about the impact of Impossible Foods' recent price cuts. Technical indicators also suggest that Beyond Meat stock could see more downside ahead.
The author holds no position in the stock(s) mentioned except through passively managed index funds.