The Honest Company, Inc.: Initiation of Research Coverage

Tuesday, June 1, 2021

William Blair initiated research coverage of The Honest Company, Inc. (HNST $14.70), a next-generation, purpose-driven company focused on disrupting large consumer packaged goods categories by innovating clean and natural offerings that are safe, sustainable, and efficacious.

Analyst Jon Andersen expects the company to grow organic sales from 2020 to 2023 at a compound annual rate of approximately 15%; and anticipates EBITDA margin to expand to 9.0% and EBITDA to grow at a compound annual rate well in excess of sales. Management is targeting long-term gross margin of 45% and EBITDA margin of 20%.

Andersen said, “The Honest Company brand is focused on leading a clean lifestyle movement by disrupting multiple conventional consumer product categories. The company’s three main target categories—diapers and wipes, skin and personal care, and household and wellness—represent $130 billion at retail. The clean and natural segments within these total $17 billion, or 13% of total addressable category sales; the segments are expected to grow at a compound annual rate of 10%, more than sixfold that of conventional offerings. The Honest Company is deeply committed to safety and sustainability, evidenced by its use of clean and natural ingredients and eco-friendly packaging. The flagship website Honest.com gives the company the ability to directly engage consumers and, in turn, generate insights to inform innovation and marketing. And a large social following and effective digital tactics help motivate a community, resulting in greater awareness and trial of the company’s offerings. Its growth strategy is multifaceted with a focus on deeper penetration of existing categories, expansion into related categories, broader distribution, and, eventually, international growth.”

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William Blair or an affiliate does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. This report is not intended to provide personal investment advice. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments, or strategies to particular clients. The recipient of this report must make its own independent decisions regarding any securities or financial instruments mentioned herein.

William Blair or an affiliate was a manager or co-manager of a public offering of equity securities of The Honest Company, Inc. within the prior 12 months.

William Blair or an affiliate is a market maker in the security of The Honest Company, Inc.

William Blair or an affiliate expects to receive or intends to seek compensation for investment banking services from The Honest Company, Inc. or an affiliate within the next three months.

William Blair or an affiliate received compensation for investment banking services or non-investment-banking services from The Honest Company, Inc. within the last 12 months. The Honest Company, Inc. is or was, within the last 12 months, an investment banking client of William Blair and/or one or more of its affiliates.

Officers and employees of William Blair or its affiliates (other than research analysts) may have a financial interest in securities of The Honest Company, Inc.

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Additional information is available upon request.

Current Ratings Distribution (as of 5/31/21)

Coverage Universe
Outperform (Buy): 75%
Market Perform (Hold): 24%
Underperform (Sell): 1%

Inv. Banking Relationships*
Outperform (Buy): 29%
Market Perform (Hold): 11%
Underperform (Sell): 0%

* Percentage of companies in each rating category that are investment banking clients, defined as companies for which William Blair has received compensation for investment banking services within the past 12 months.

The compensation of the research analyst is based on a variety of factors, including the quality and accuracy of research, client feedback, contributions to other firm departments, competitive factors, and firm profitability.

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