Shares of Beyond jumped as much as 31% in morning trading on the news, while Pepsi’s stock rose about 1%. The run in Beyond Meat may have been helped by hedge funds rushing to cover their bets against the stock, a trend unfolding in may heavily-shorted names this year. More than 38% of the Beyond Meat shares available for trading are sold short, according to FactSet.
The partnership gives Beyond, a relative newcomer to the food world, a chance to leverage Pepsi’s production and marketing expertise for new products. For its part, Pepsi can deepen its investment in plant-based categories, which are growing increasingly crowded, while working with one of the top creators of meat substitutes.
Beyond Meat controls about 13% of the meat alternatives category in the U.S., according to estimates from Jefferies.
“PepsiCo represents the ideal partner for us in this exciting endeavor, one of global reach and importance,” Beyond Meat CEO Ethan Brown said in a statement.
Operations will be managed through a limited liability corporation called The PLANeT Partnership. Financial terms were not disclosed.
The partnership also helps Pepsi work toward its sustainability goals. Last year, the company signed the United Nations’ pledge, committing to set science-based emissions reduction targets. A 2019 report from the UN found that the food system contributes to 37% of greenhouse-gas emissions. In recent years, Pepsi also has been trying to cut down the amount of sugar in its products and add healthier snacks and drinks to its portfolio.
“Plant-based proteins represent an exciting growth opportunity for us, a new frontier in our efforts to build a more sustainable food system and be a positive force for people and the planet, while meeting consumer demand for an expanded portfolio of more nutritious products,” Ram Krishnan, Pepsi’s Global Chief Commercial Officer, said in a statement.
JPMorgan analyst Ken Goldman said in a note to clients that he views the partnership as an “incremental positive” for Beyond, but he thinks that the stock move has overshot the actual opportunity.
“We merely question how big the market size is for these products,” Goldman wrote. “Is there a huge, uncounted population clamoring for vegan Doritos? Probably not, in our opinion, and surely not big enough to justify this kind of stock move.”
Shares of PepsiCo are roughly flat over the last year, giving it a market value of $196 billion. The food and beverage giant has seen higher sales during the pandemic, thanks to consumer stockpiling and less exposure to away-from-home occasions than its rival Coca-Cola.
As of Monday’s close, Beyond’s stock has risen more than 32% in the last year, despite the blow to its business by the coronavirus pandemic, which hurt its sales to restaurants. The company has a market value of $9.95 billion.