Sam Boughedda

Loop Capital analyst Laura Champine downgraded The Honest Company Inc (NASDAQ:), went from Buy to Hold to Thursday, bringing the stock down another 9.9%. Also, the firm has lowered their price target by $5 to $3.

Champine said the firm is concerned with comments from mass retailers, including HNST’s largest customer, Target (NYSE) – This week’s profit outlook was cut by the stock exchange as it reduces prices to eliminate unneeded inventory.

“Our PT falls on sales cuts, long-term forecasts for lower gross margin and short-term projections of higher inflation. This is because we anticipate inflation exceeding our expectations.” The analyst stated that our sales forecasts are below consensus for this and next years. The analyst stated that Honest revenue is expected to drop to -1% in 2022 and have a gross margin of 34%.

Champine reported that Loop Capital believes this is more likely because of continued cost inflation, destocking by retailers, and The Honest Company’s previous statements.

“Revenue growth has been weaker than we expected since the company’s mid-2021 IPO, despite HNST being a well-known brand that should appeal to current sensibilities given the brand’s focus on natural ingredients and sustainable packaging. We had thought the positive catalyst would be the rollout of diapers throughout WMT’s stores later this year. We now see this benefit overshadowed near-term on mass retailers’ destocking efforts and continued mix shift away from the higher-margin digital channel,” added Champine.

“We think the price range for premium HNST products at 10-15% is safe, even though the company hikes its prices in 2022. This is because all suppliers are facing increasing pressure.”