Oatly to emerge winner in 2022 plant-based peers’ battle By Reuters

By Praveen Paramasivam

(Reuters) – Oatly Group (NASDAQ:) AB is expected to forecast strong sales growth for 2022 when it reports results on Wednesday as health-conscious consumers consistently turn to the company’s plant-based milk, a contrast to the demand slowdown seen by Beyond Meat (NASDAQ:).

Many restaurants and retailers have partnered with Oatly in recent months to offer vegan options to customers. One of the biggest boosts has, however, come from a U.S. oatmilk supply agreement with Starbucks Corp (NASDAQ:).

As a result, Wall Street’s sentiment on Oatly has become more favorable than that on alternative meat maker Beyond Meat Inc , which has seen its sales growth fizzle through the pandemic for a number of reasons.

“Beyond Meat has not meaningfully expanded distribution in the U.S. over the past year or so … Oatly’s sales growth is currently being driven by expanded distribution,” CFRA Research analyst Arun Sundaram said.

CONTEXT

Oatly is expecting to provide 85% to 90% of Starbucks oatmilk needs in 2022. Chief Executive Officer Toni Petersson said late last year performance of Oatly’s oatmilk at the coffee chain exceeded expectations.

About 30 million American adults have some degree of lactose intolerance by age 20, according to U.S. National Library of Medicine’s MedlinePlus, making alternative milk a must-buy product for many of them.

Oatly said in November it had opened its first production facility in Ma’anshan, China, just a few months after opening its first Asian factory in Singapore, signaling its margins would improve by bringing more production in-house.

FUNDAMENTALS

Analysts project Oatly to record a near 58% increase in revenue for 2022, with loss also shrinking from 2021 levels. In contrast, Beyond Meat’s revenue is expected to rise only 27%.

Graphic: Oatly usurps Beyond Meat as Wall Street’s alternative food darling: https://graphics.reuters.com/OATLY-RESULTS/xmvjoeqlbpr/chart.png

Oatly has the second highest projected revenue growth among its food and beverage growth peers, only behind energy drink maker Celsius Holdings (NASDAQ:) Inc, according to brokerage Piper Sandler.

Still, Oatly will need to overcome potential mechanical and automation issues during its production ramp up as well as broader supply-chain disruptions to ensure demand for its milk, ice cream and yogurt converts into sales.

Revenue for the fourth quarter is expected to rise 2% sequentially, despite recalling a few products and discarding less than one million liters of inventory due to a quality issue in November.

WALL STREET SENTIMENT

** Around 68% of analysts rate Oatly “buy” or higher, compared with just 10% for Beyond Meat.

** Oatly’s current mean price target implies an upside of 136% to Monday’s close, versus Beyond Meat’s 25%.