Street Bullish on Jessica Alba's Honest Company (HNST), Seen as a 'Solid Topline Growth Story'

June 1, 2021 8:47 AM EDT
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Price: $14.68 +2.73%

Rating Summary:
    7 Buy, 2 Hold, 0 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 18 | Down: 11 | New: 19
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Shares of the Honest Company (NASDAQ: HNST) are up over 3% in pre-open Tuesday as Wall Street firms started coverage on the recent IPO.

In May, the company raised $412.8 million in its initial public offering (IPO) selling 25.8 million shares priced at $16 per unit, which represented the upper half of the expected range. This came after the consumer goods company founded by Jessica Alba said it expected its IPO to be priced in the range between $14 and $17 per share.

The demand for Honest’s IPO was “well oversubscribed.” Lead underwriters for the IPO were Morgan Stanley, JPMorgan, and Jefferies.

As many as seven Wall Street firms started the coverage with a “Buy” or equivalent rating, including Citi, Morgan Stanley, JPMorgan, Jefferies, etc. The only analyst to stay on the sidelines so far is Loop’s Laura Champine.

Morgan Stanley analyst Dara Mohsenian sees the company as a strong growth story within CPG and therefore starts with an “Overweight” rating and a $17.50 per share price target.

“We see Honest as an attractive revenue growth story within the CPG group, with its 100% exposure to the premium, high-growth clean/natural product category growing at a HSD-low DD rate pre-COVID, and near two-thirds revenue exposure to e-commerce,growing at a low- to mid-teens pace pre-COVID. We also see expansion opportunities, both within its current US retail footprint (estimated 40% US ACV), but also whitespace opportunities in Walmart in the US, into ancillary new product categories, and internationally,” the analyst said in a memo.

“Our 14% three-year revenue CAGR through 2023e reflects these growth opportunities, with HSD revenue growth thereafter, and does not seem priced into valuation, with our $15-20 one-year forward DCFrange at its midpoint ($17.50, in-line with our PT) ~19% above the current stock price. Looking at broader CPG, we continue to prefer the beverage sector and beauty in HPC, particularly names that have greater secular LT growth than the market is pricing in, strong pricing power in an inflationary environment, an above consensus post COVID topline recovery with an away-from-home pickup.”

Similarly, Guggenheim analyst started with “Buy” and a price target of $18.00 per share.

“In our view, the primary growth drivers for Honest going forward should be increased velocity, innovation, and, to the least extent, distribution gains in retail. The growth strategy that management has outlined does not rely on significant ACV expansion, but rather converting customers from conventional brands to clean and natural segments where Honest has a presence, which are growing at 6x the rate of conventional segments, and increasing the basket size of its existing customers in e-commerce. We estimate more than 80% of the company’s 16% annualized growth through FY23 will come from velocity, with the remaining 20% from increased distribution in retail,” the analyst wrote in a note.

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