Shares of Honest Company (HNST) are on the rise on Tuesday as Wall Street analysts roll out bullish coverage on the name. Morgan Stanley analyst Dara Mohsenian started the stock with an Overweight rating as he views Honest as a "strong growth story," an opinion shared by Jefferies analyst Stephanie Wissink, who also initiated coverage of the shares with a Buy rating. While Loop Capital analyst Laura Champine acknowledged that she likes the company's "strong following," the analyst started Honest with a Hold rating.
'STRONG GROWTH' STORY: Morgan Stanley analyst Dara Mohsenian initiated coverage of Honest Company with an Overweight rating and $17.50 price target. The analyst views Honest as a "strong growth story" given its skew to the "high-growth" clean/natural product categories and e-commerce channel. Mohsenian also sees expansion opportunities, both within its current U.S. retail footprint, but also whitespace opportunities in Walmart (WMT) in the U.S., into ancillary new product categories, and internationally.
Jefferies analyst Stephanie Wissink also started coverage of Honest Company with a Buy rating and $19 price target. Honest's formulas "go beyond global standards for banned ingredients," its brand boasts a loyal community and Wissink sees superior growth being driven by its in higher margin beauty and personal care segments. However, the analyst also noted that the company has "key woman risk" as Jessica Alba's reach in social and her "extensive network of highly recognizable and socially influential celebrity moms" are intangible assets that give Honest reach and visibility that most brands need to fund with marketing spending.
Meanwhile, William Blair analyst Jon Andersen initiated coverage of Honest Company with an Outperform rating and no price target. The company's three main target categories - diapers and wipes, skin and personal care, and household and wellness - represent $130B at retail, Andersen noted. Looking forward, the analyst expects Honest Company to grow organic sales at a compound annual rate of approximately 15%.
On Monday, JPMorgan analyst Andrea Teixeira also started coverage of Honest Company with an Overweight rating and $18 price target. The analyst told investors that she views Honest as well positioned to benefit from faster growth in the clean and natural end market as consumers increasingly factor health, wellness and sustainability attributes into their purchase decisions. She expects the company to deliver sales growth of 15% annually through 2023.
ON THE SIDELINES: More cautious on the name, Loop Capital analyst Laura Champine initiated coverage of Honest Company with a Hold rating and $15 price target. The analyst acknowledged that she likes the company's "strong following" and a direct-to-consumer digital platform that provides "valuable data" to better understand core customers' product preferences. Further, Champine noted that Honest has developed successful partnerships with other e-commerce sales such as Amazon (AMZN). However, the analyst pointed out that the Diapers and Wipes category currently makes up most of the company's revenue, but admitted that she expects the Skin and Personal Care category to be a growth engine for the company as Honest penetrates a large beauty market. Champine expects Honest revenue to grow 13.6% year-over-year in the second quarter of 2021, with a gross margin of 36%.
PRICE ACTION: In Tuesday morning trading, shares of Honest Company have gained almost 6% to $16.65. Honest opened for trading at $21.22 on May 5 after its 25.81M share IPO priced at $16 per share.
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