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What Wall Street thinks about Allbirds and buying an ESG-branded stock

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On Tuesday, February 16, 2021, a woman passes an Allbirds shop in Georgetown, Washington, D.C.

Getty Images| Bloomberg | Getty Images

AllbirdsAdidas is a long-standing brand that has focused its efforts on the use of sustainable, natural materials in order to stand out from other brands such as Adidas. NikeBalance and New Balance

Wall Street has been impressed by the company’s ESG-focused business model. This comes before Allbirds reports financial results, its first public report as an independent company.

Allbirds, which initially priced its 20.2 million shares at $15 to raise roughly $303 million in an offering early in November, saw a massive surge on its first day of trading, closing up nearly 91% at $28.64. The stock fell more than 34% since yesterday’s close.

Many analysts are bullish on the appeal of sustainable businesses to investors and consumers. More money has flowed into funds and stocks that have an ESG focus — $3 out of every $10 going into global equities is being directed into ESG, according to Bank of America. According to the report, Fall 2021 saw the environment rated the most significant social and political issue for teenagers. Piper Sandler “Taking Stock With Teens” surveyThis signals potential Allbirds buyer in the near future.

ESG can be a difference maker

Analysts at Bank of America wrote that Allbirds’ emphasis on sustainability would be a major difference from both a consumer- and investor standpoint. The uniqueness in sourcing sustainable material (i.e. Allbirds is unique in sourcing sustainable materials, such as wool, tree, and sugar cane. This makes them stand out among their peers. It will also increase as people incorporate more sustainability standards into the products they purchase. Another advantage lies in the fact that more money is being invested into ESG funds.

BofA gave the stock a Buy rating and set a $23 price goal.

Allbirds shares trade below $19 on Tuesday.

Piper Sandler said that Piper Sandler’s company’s “strict commitment to sustainable is a key differentiation vs. peers and will result in tens of million of loyal consumers over the course of time.”

“To that end, BIRD plays into several structural investment themes including: consumers shifting towards a direct relationship with brands, an acceleration of casual & athletic product and increasingly relevant ESG conversation for consumers & investors alike,” Piper Sandler analysts wrote, placing a buy rating and a $26 price target on the stock.

Stifel analyst wrote that it had conducted a study of over 11,000 customers in six countries. It found “wide market agreement” regarding the trend toward the “appreciation and sustainability” and the “casualization” of fashion, areas which are “the brand’s ethos.”

Stifel analyst wrote that Allbirds uniquely aligned itself and its operations with megatrends likely to drive consumer spending in the future. “Our leadership position in bringing sustainability materials to the market on a large scale has given us credibility both with consumers and suppliers, as well potential partners.

Stifel gave the stock an “buy” rating and set a 12-month price target of $25.

How to stay sustainable

Analysts pointed out the difficulty of maintaining the sustainability title in an extremely competitive market for sneakers and apparel, particularly as the company moves into the performance sector.

“There is a threat from larger incumbent players such as Nike & Adidas investing heavily in similar natural & sustainable materials commercialization capabilities, noting BIRD does not maintain patents on the materials or design, which could impact Allbirds’ competitive positioning,” Baird analysts wrote.

Allbirds and Adidas joined forces in 2020 to produce performance running shoes with zero carbon footprint. Up to 10,000 pairs of the shoes have been sold so far. There will be a bigger release for spring/summer 2022.

Allbirds’ first shoe for running, the Tree Dasher (2020), was launched by Allbirds. This summer, Allbirds also released running apparel.

Telsey Advisory Group analysts stated that Allbirds has made a concerted effort into apparel and performance. With well-known players Adidas and Nike holding 39% and 19% of the market, “the athletic footwear industry has a competitive edge.” There are many other fast-growing brands as well, such as OnHoka is a Hoka that caters to an identical consumer to Allbirds.

Maintaining that commitment to ESG practices is also a challenge.

Cowen analysts noted that sustainability practices in footwear are still not at the scale required. It “often carries higher costs of doing business to source sustainable materials in the immediate future until adoption becomes more widespread.” They warned there might be reputational risk if BIRD fails to comply with ESG standards.

Stifel pointed out that ESG practices can also cause reputational damage.

“The Allbirds brand was built on its record of environmental stewardship. Stifel analysts stated that this brand must be unaffected by any environmental missteps. “Any Environmental Missteps, or Overstatement of Environmental Claims would get considerable attention in press and on social Media likely to impact brand reputation and the demand for Allbirds’ products.”

Allbirds initially stated that it planned to make public its “first sustainable private equity offering,” which it called SPO. Allbirds presented its framework in August’s S-1 filing to SEC. It was developed with the help of outside organizations and would set a range of governance, environmental and sustainability standards.  

Allbirds changed or removed the language surrounding the framework in its subsequent prospectus editions. This included deleting one line suggesting that other companies might also be following the SPO framework. Allbirds CFO Mike Bufano told the Financial Times that the company had received feedback from the SEC that prompted the changes.

Gary Gensler, Chairman of Securities and Exchange Commission has repeatedly stated that many things are being evaluated by the commission in relation to ESG. including launching a climate and ESG enforcement task force.

Gensler stated in June that he had asked his staff to look into the requirements of companies who have taken forward-looking commitments to climate change or have substantial operations in countries that require them to meet specific climate targets.

ESG will continue to be a focus for both investors and consumers, which presents an opportunity for Allbirds companies to fulfill their commitments.

“You see regulators planning actions, analysts asking ESG questions on quarterly calls, shareholders raising the topic at annual general meetings – these are all things that were once niche but have taken hold,” Aron Cramer, the president and CEO of Business for Social Responsibility, told CNBC. ESG has become an integral part of business strategy and it is worth paying close attention.

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