Shares of Honest Company (HNST) are sliding on Thursday after the company founded by actress Jessica Alba reported first-quarter results in its initial quarterly report since coming public in May. Citing a "lack of an apparent catalyst" following "solid" results, Guggenheim analyst Laurent Grandet downgraded Honest to Neutral. Still bullish on the name, JPMorgan analyst Andrea Teixeira told investors that the stock should be bought on the earnings selloff as she believes Honest is on the right track to deliver or exceed its growth algorithm.

RESULTS: Honest Company reported first-quarter losses per share of (13c) versus 1c per share in GAAP earnings last year, and first-quarter revenue of $81.03M versus $72.37M last year. The company also said adjusted EBITDA was ($0.1M) compared to $4.5M last year, and that it ended the first quarter with $58.1M in cash, cash equivalents, short-term investments, and short and long-term restricted cash, a decrease of $13.6M compared to December 31, 2020. Net inventories at the end of first quarter totaled $75.7M compared to $76.7M as of December 31, 2020.

"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, CEO of 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."

MOVING TO THE SIDELINES: Following the company's quarterly results, Guggenheim analyst Laurent Grandet downgraded Honest Company to Neutral from Buy without a price target. The analyst acknowledged the company reported "solid" first-quarter results, and that he remains positive on its underlying fundamental outlook. However, Grandet sees a more balanced risk/reward at current valuation levels and a "lack of an apparent catalyst" to materially increase sales expectations.

In the short term, Grandet does see a few mitigants including Honest’s competitive advantage in digital and Alba’s highly active involvement in the day-to-day operations that should support the positive momentum following a strong 2020. Longer-term, despite the strong revenue growth, the stated margin targets of 45%-plus and 20%-plus for gross margin and operating margin, respectively, are still below the Health and Personal Care average, he contended.

Meanwhile, Loop Capital analyst Laura Champine raised the firm's price target on Honest Company to $20 from $18, but kept a Hold rating on the shares after results, which exceeded her estimates. The analyst noted that Skin and Personal Care category is expected to be a growth engine for the company as Honest penetrates a large beauty market with its social media-oriented marketing.

STOCK SHOULD BE BOUGHT ON WEAKNESS: Bullish after quarterly results, JPMorgan analyst Andrea Teixeira raised the firm's price target on Honest Company to $19 from $18, while keeping an Overweight rating on the shares. While the company refrained from providing annual guidance, management sounded optimistic on the preliminary results of its new conscious diaper launch as well as the beauty restage scheduled for the third quarter, Teixeira told investors in a research note. But with management "talking down expectations into Q2," the analyst had expected the stock to open lower on Thursday. Investors should use potential stock weakness as a buying opportunity as Honest is on the right track to deliver or exceed its growth algorithm, Teixeira argued.

Also commenting on the news, Jefferies analyst Stephanie Wissink said Honest Company delivered a "solid" sales beat in its first quarter since coming public. The analyst is encouraged by a doubling of the skin and personal care business on a two-year basis and sees an opportunity for skin and personal care to see "steady 25%+ growth" backed by new distribution, space and wallet share gains, and the brand picking up a younger/Gen-Z consumer. Wissink kept her full-year 2022 and 2023 estimates unchanged. The analyst has a Buy rating and $19 price target on Honest shares.

Meanwhile, Morgan Stanley analyst Dara Mohsenian told investors that Honest Company's first-quarter results were stronger than expected. Nonetheless, the analyst assumes the outperformance is coming out of the second quarter as the company highlighted that a retailer reduction of inventory in the second quarter could drive shipments below underlying consumption. Mohsenian, who is "conservatively" assuming that second-quarter sales will come in lower than previously expected and offset first-quarter upside, leaves his full-year 2021 estimates largely unchanged. He has an Overweight rating and $17.50 price target on Honest shares.

PRICE ACTION: In Thursday morning trading, shares of Honest have dropped almost 8% to $16.27.