Jessica Alba's Honest Company (HNST) Tops Q1 Views But Stock Dips as Growth Slows, Prompts Analyst to Downgrade on High Valuation

June 17, 2021 7:15 AM EDT
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Price: $14.22 -2%

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    7 Buy, 2 Hold, 0 Sell

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    Up: 18 | Down: 12 | New: 23
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Shares of Honest Company (NASDAQ: HNST) are down 8% in pre-open trading Thursday after it reported its quarterly earnings for the first time since going public last month.

Founded by famous actor Jessica Alba, the Honest Company reported a loss of $0.05 per share on sales of $81 million, compared to $0.06 per share on sales of $79.3 million that market analysts expected.

The company’s key business unit - diapers and wipes - saw sales fell 2% to $49.6 million on tough comps. On a more positive note, sales of skin and personal care rose 42% to $26.2 million, while household and wellness sales surged 53%.

“We had a strong start to 2021, reporting double-digit sales growth. This growth reflects the ongoing success of our strategic initiatives focused on Content, Community and Commerce, powerful innovation and category expansion,” said Nick Vlahos, Chief Executive Officer of The Honest Company.

“Honest is dedicated to providing safe, clean and effective products to consumers around the world and we are confident our strategy will help drive our mission of inspiring everyone to love living consciously.

Following the Q1 report, Guggenheim analyst Laurent Grandet downgraded to “Neutral” from “Buy” amid the more balanced risk-reward and lack of an apparent catalyst. He also removed the price target (prior $18.00 per share).

“We continue to expect a strong revenue CAGR of 16% through FY23 that compares favorably to other HPC peers. However, given the stock has gained 12% since we initiated (vs. S&P +0.5%), now trading at 3.9x our CY23 sales estimate, we think the valuation represents a balanced risk-reward,” the analyst said in a note.

“While we believe the underlying fundamentals remain strong, especially as it compares to other CPG peers, we don’t see any indication to move our estimates materially higher, and we think the valuation is appropriate at this level.”

Loop Capital analyst Laura Champine reiterated the “Hold” rating and lowered the price target from $20.00 per share to $18.00.

“The changes in our model today reflect slightly more conservative long-term top-line growth. Q1 results beat both our top-line and EBIT estimates by $1MM. We are projecting $341MM in 2021 revenues as we flow through this modest beat. We expect Honest revenue to grow 13.6% YoY in Q2 2021, with 36% gross margin. We expect the Skin and Personal Care category to be a growth engine for the company as HNST penetrates a large beauty market with its social media-oriented marketing. The company has a relaunch of its beauty line slated for Q3. We believe the current 10-20% premium HNST products command could shrink near-term as inflation forces mainstream companies to raise prices,” Champine wrote in a memo.

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