Shares of Honest Company (HNST) were under pressure on Friday after the company reported sales declines compared to last year as COVID-related lockdowns eased and consumers stopped stockpiling goods. Following the company's worse than expected second quarter results, Morgan Stanley analyst Dara Mohsenian downgraded Honest to Equal Weight on "much lower visibility." On the flip side, his peer at Guggenheim upgraded the stock to Buy on the view that the pullback in the shares creates an "unbalanced" risk-reward.
RESULTS: On Friday, Honest Company reported second quarter losses per share of (17c) and revenue of $74.6M, both worse than the expected (14c) and $79.52M, respectively. "As we look to the remainder of the year, we continue to have confidence in our three-year strategic plan, Strategy 2023, and are focused on executing with excellence to deliver shareholder value over the long-term and solidify Honest's position as the next generation, modern CPG company," CEO Nick Vlahos said.
BUY HONEST: This morning, Guggenheim analyst Laurent Grandet upgraded Honest Company to Buy from Neutral with a $14 price target. Noting that the company reported "disappointing" second quarter results that sent the stock tumbling, the analyst believes the risk-reward is "unbalanced" following the 28% pullback in the shares. Though investors could prefer to wait and see how the next couple quarters play out and the market will assign a higher degree of risk, he sees a favorable risk-reward as the current share price implies only low- to mid-single digit top-line growth through fiscal year 2023.
Keeping a Buy rating on the shares, Citi analyst Wendy Nicholson lowered the firm's price target on Honest Company to $14.50 from $20 after the company's second quarter sales came in lower than expected. The analyst still believes there is a "sizable, long-term opportunity" ahead of Honest to grow sales and improve margins. However, the conference call "highlighted the fact that this is an early-stage public company dealing with some bumps in the road," Nicholson added.
MOVING TO THE SIDELINES: More bearish on the name, Morgan Stanley analyst Dara Mohsenian downgraded Honest Company to Equal Weight from Overweight with a price target of $11, down from $17.50. The company reported worse than expected second quarter results and also guided to a softer than expected second half of 2021 on commodity pressure and revenue softness, Mohsenian pointed out. The analyst cited "much lower" visibility, lower estimates and the time it will take to "rebuild credibility" for the downgrade.
Meanwhile, Bank of America analyst Bryan Spillane lowered the firm's price target on Honest Company to $11 from $18 and kept a Neutral rating on the shares after the company reported second quarter sales that came in shy of his and Street estimates as sanitizing and disinfecting consumption slowed more sharply than expected. Following the report, Spillane lowered his 2021 and 2022 sales estimates by 4.5% and 5.5%, respectively, reflecting lower expectations for the Health & Wellness segment.
PRICE ACTION: In Monday morning trading, shares of Honest Company have dropped about 2% to $9.96.
"Street Fight" is The Fly's recurring series of exclusive stories that highlight a stock or sector that is in focus amid divergent views from Wall Street analysts.
Honest Company
-0.15 (-1.49%)