The Honest Co. was founded by actress Jessica Alba.
Gabby Jones/Bloomberg
The Honest Co. broke below $10 for the first time on Monday, extending a slide that started last week when the household and personal care company’s second-quarter results fell short of estimates.
Analysts are split on what investors should do next.
Guggenheim analyst Laurent Grandet argues the selloff has gone too far. He upgraded the stock to Buy from Neutral, establishing a $14 price target.
Grandet admits the market probably sees Honest Co. (ticker: HNST) as riskier now, given that the company reset expectations lower, but he thinks the risk-reward is much more attractive. Right now, he points out, the share price implies low- to mid-single digit top-line growth through fiscal 2023. That could prove too modest.
Nonetheless, there are catalysts for a rebound, in Grandet’s opinion. “In the short term, we do see a few mitigating factors including Honest’s competitive advantage in digital and founder Jessica Alba’s highly active involvement in the day-today operations that should support the positive momentum following a strong 2020,” he writes.
By contrast, Morgan Stanley’s Dara Mohsenian downgraded Honest Co. to Equal Weight from Overweight, while trimming his price target to $11 from $17.50. He notes that the company’s muted guidance for the second half of the year is especially disappointing since it comes so soon after the stock’s May initial public offering.
Mohsenian also thinks the guidance gives ammunition to skeptics, given that Honest Co. has made missteps in the past and remains a relatively small, not-yet-profitable business. “Clearly the stock is already off significantly, but with much lower visibility, lower estimates, and likely taking time to rebuild credibility,” he thinks investors should step to the sidelines.
By late morning, shares were down 1.9% to $9.88—nearly 38% below its $16 IPO price—after trading as low as $9.57 earlier.
Write to Teresa Rivas at [email protected]
