Tyson Foods (NYSE:TSN) is the country's largest marketer of chicken, pork and beef, but that doesn't mean it can't spot the opportunity involved in catering to a less carnivorous demographic than its usual customer base: It announced this week that it will soon begin selling its own line of plant-based meat substitutes.
In this segment from MarketFoolery, host Chris Hill and analyst Emily Flippen talk about Tyson, its plans, its early stake in recently public Beyond Meat (NASDAQ:BYND), the massive growth opportunities for the meat substitute market, and more.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.
This video was recorded on May 7, 2019.
Chris Hill: Let's start with one of my favorite topics, and that is, of course, food. Specifically Tyson Foods, which is the parent company of Hillshire Farms. They're in the meat business. Tyson Foods making headlines because they announced this summer they're going to roll out their own line of plant-based meat substitutes. I did not realize that Tyson Foods was an early investor in Beyond Meat.
Emily Flippen: They were an early investor in Beyond Meat, and eventually sold their stake because Beyond Meat said they didn't want a competitor invested in them. And it's really interesting that they chose to announce this development now, right after we've just seen the crazy week last week with Beyond Meat's IPO. I think at this point, investing into meat alternatives, especially when you're a company like Tyson, is just smart business.
Hill: We've talked before about the marijuana industry, and how, yes, we expect that industry to grow, but we're not sure what direction it's going in; yes, there will be some winners. The meat substitute industry seems almost like a no-brainer.
Flippen: Seems like the marijuana industry? [laughs]
Hill: No, I was going to say, more so than the marijuana industry -- and we'll get to what happened with Beyond Meat in a second. But I look at this, and I really don't see how this industry doesn't grow dramatically over the next 25 to 50 years.
Flippen: Exactly. And when you look at actual meat, Tyson's core business, those products are really a commodity. They depend on supply. There's a lot of different variables that can disrupt that production. We're seeing a lot of that happening in China right now, both with pork and chicken. While that's a small part of Tyson, it's still notable, because it's acknowledging the fact that if there's a better, more sustainable, cheaper way we can give people protein, we should be exploring those alternatives.
It's concerning to me not that Tyson's is getting into it, but the fact that they were such an early investor in Beyond Meat and have just now decided to start putting out their own products, that begs the question of, what were you doing for the past three years?
Hill: On that point, it will be interesting to see, when they start to roll these out, what does that look like? Do they do it quietly? Do they make a big show of it? It may be, at that time, we start to get some more color from Tyson in terms of, "This is what we've been working on." Maybe not.
Let's just recap the last seven or eight days for Beyond Meat. [laughs] Last week, they set their price range for their IPO at $19 to $21 a share. On Thursday, it goes public at $25. It pops 163% on the opening day, and today it's at $80. Now, keeping in mind everything I just said about how confident I am that this industry will grow, doesn't this seem a little insane for Beyond Meat? Do you look at Beyond Meat at this price right now, and think to yourself, "Yeah, I would buy it at 80," or do you think, "Wait a minute, I'm going to wait for this to come down"?
Flippen: The problem is that we're anchoring to their initial IPO price. There's an argument to be said that maybe if it stays up at this price, they just horribly mispriced their IPO. They didn't understand market demand for their products. Right now, they're the only pure-play non-meat company on the market. Part of me thinks, wow, this has increased so much. It's a bubble. I mean, that's just waiting for a pullback. It's a company with widening losses, stiff competition not just from Tyson but from other competitors. So part of me thinks, yeah. But then I keep remembering -- I go out to eat, I see Beyond Meat everywhere. I see them in restaurants, grocery stores. And I see people love their product. And part of me thinks, yeah, this is an evolving trend that's going to be here for the long term. Whether or not Beyond Meat ends up being the big player in that field is to be determined, and I wouldn't buy in at today's prices. But I don't think it's completely crazy.
Hill: Later this week, Uber is going to go public. I think most of us were surprised when they set their price range that it was lower than what we were expecting. I have to believe that what happened with Lyft's IPO impacted the price range for Uber. By the same token, Impossible Foods, which is a competitor of Beyond Meat, if they're not looking at going public, or if they weren't, they certainly are now. I have to believe that what happened with Beyond Meat's IPO bodes good things for Impossible Foods' IPO whenever that comes.
Flippen: It's just a good time for IPOs right now, too. The market's hot, people are excited. These are good companies that are doing good things in the world and demand a lot of brand-name recognition. Whether or not that ends up being sustainable is to be seen.