Money & Markets Week Ahead for May 2, 2021: Should you invest after The Honest Co. Inc. IPO launches this week?
There are more big companies reporting earnings this week, and I deep dive into one in particular: Square Inc. (NYSE: SQ).
Investors will also get a look at non-farm payroll changes for April.
Here’s more of what to look for in the week ahead on Wall Street:
On the IPO Front: The Honest Co. Inc.
There just two initial public offerings on the calendar this week.
Let’s look at The Honest Co. Inc., which plans to price its IPO on Thursday. It intends to trade on the Nasdaq using the ticker symbol HNST.
What it is: The company was co-founded by actress Jessica Alba and specializes in wellness and baby care products.
Honest Co. bills itself as a company that makes baby products, beauty and household items without harmful chemicals.
In its S-1 filing with the Securities and Exchange Commission, it generated 55% of its revenue from digital channels. The remaining revenue came from retail sales through chain partnerships.
The company said it sells its products in 32,000 retail locations, including Walgreens, Costco, Target and Amazon.
The Honest Co. generated $300.5 million in revenue in 2020 — a 27.6% increase from the $235 million it reported in 2019.
However, the company reported a net loss of around $14.5 million.
The company increased its gross margin by 370 basis points to 35.9% in 2020.
For the three months ending March 31, 2020, the company had revenue of $72.4 million and net income of $559,000. Honest expects revenue growth between 8% and 11% for the first quarter of 2021.
The offering: The company will offer 25.8 million shares at a price range of between $14 and $17 per share.
It hopes to raise around $400 million with its IPO, which will be used to increase capitalization and financial flexibility.
According to Renaissance Capital, at the midpoint of $15.50 per share, Honest could see a market value of around $1.6 billion.
Morgan Stanley, JPMorgan, Jefferies, Bank of America Securities, Citi, William Blair and Guggenheim Securities are all bookrunners on the deal.
The skinny: This is an interesting company that prides itself on offering products that do not contain chemicals or other harmful materials, like parabens and sulfates.
However, a few things to note:
- In 2017, the company settled a lawsuit that contended the company falsely labeled its products as “natural” with “no harsh chemicals.” It was the second such lawsuit the company settled.
- In its prospectus, the company admitted to not generating any profit since its founding in 2012. It also said: “We may not be able to achieve or maintain profitability in the future.”
While the older lawsuits can be cast aside, the lack of profitability is a cause for concern to potential investors.
Deeper Dive: Square Inc.
Square Inc. (NYSE: SQ) is reporting quarterly earnings on Thursday.
It’s a financial services and digital payment company based in San Francisco, California.
Square EPS Jumps at the End of 2020
Square earnings dropped off in the middle of 2020 as the COVID-19 pandemic took its toll on many stocks.
However, the company rebounded at the end of the year and posted earnings per share (EPS) of more than $0.30 in each of the last two quarters of the year.
Square Revenue Takes Off In 2020
The company’s revenue followed suit.
There was a slight drop in the second quarter of 2020, but the rebound was fast — hitting more than $3 billion per quarter at the end of the year — a 413% jump.
Wall Street is projecting earnings per share of $0.17 on revenue of $3.31 billion.
The skinny: The payment company beat Wall Street expectations for revenue in each of the last 10 quarters.
It also beat EPS expectations in nine of the last 10 quarters.
There is nothing to suggest it won’t do the same this quarter.
In fact, I think expectations will be closer on revenue, but earnings could be another blowout for the company.
Money & Markets Week Ahead: Data Dump
Automatic Data Processing (ADP) will release its non-farm employment change on Wednesday.
This data examines the monthly change in non-farm, private employment of 400,000 businesses.
The report comes out two days before the federal government’s analysis, making the ADP report a good barometer of total U.S. non-farm employment.
Employment Struggles to Make Up for 2020 Losses
The data shows non-farm employment additions continue to lag behind losses incurred in the middle of 2020.
During that time, non-farm payrolls shaved nearly 23 million jobs amid the COVID-19 pandemic.
Since then, payrolls have only added back around 5 million of those jobs lost.
Expectations are for non-farm payrolls to jump another 750,000. It’s important to note that actual figures have fallen below expectations in 10 of the last 17 months.
Earnings Reports
To finish off the Money & Markets Week Ahead, here’s a look at some of the key earnings reports due out this week:
Monday
Estee Lauder Companies Inc. (NYSE: EL)
Alexion Pharmaceuticals Inc. (Nasdaq: ALXN)
Diamondback Energy Inc. (Nasdaq: FANG)
Tuesday
Pfizer Inc. (NYSE: PFE)
T-Mobile U.S. Inc. (Nasdaq: TMUS)
CVS Health Corp. (NYSE: CVS)
Activision Blizzard Inc. (Nasdaq: ATVI)
Wednesday
PayPal Holdings Inc. (Nasdaq: PYPL)
Uber Technologies Inc. (NYSE: UBER)
General Motors Co. (NYSE: GM)
Thursday
Anheuser Busch InBev SA (NYSE: BUD)
Square Inc. (NYSE: SQ)
Moderna Inc. (Nasdaq: MRNA)
Friday
Cigna Corp. (NYSE: CI)
DraftKings Inc. (Nasdaq: DKNG)
That’s all for this week.
Until next time…
Safe trading,
Matt Clark
Research Analyst, Money & Markets
Matt Clark is the research analyst for Money & Markets. He’s the host of our podcast, The Bull & The Bear, as well as the Marijuana Market Update. Before joining the team, he spent 25 years as an investigative journalist and editor — covering everything from politics to business.