What Wall Street thinks of Allbirds and buying ESG branded stock

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A woman walks past an Allbirds store in the Georgetown neighborhood of Washington, DC on Tuesday, February 16, 2021.

Al Drago | Bloomberg | Getty Images

Allbirds has focused on the use of natural, environmentally friendly materials to differentiate itself from long-standing brands such as Adidas, Nike and New Balance in the sneaker sector.

Putting ESG efforts at the heart of its business also caught Wall Street’s attention before Allbirds first released financial results as a publicly traded company after Tuesday closed.

Allbirds, which initially valued its 20.2 million shares at $ 15 to raise around $ 303 million in early November, saw a massive surge on its first day of trading, closing nearly 91% at $ 28.64. Since then, however, the stock has slipped, losing more than 34% at close of trading yesterday.

But the growing attractiveness of sustainable companies for investors and consumers leaves many analysts optimistic. More money has gone into ESG-focused funds and stocks – $ 3 in every $ 10 that goes into global stocks goes to ESG, according to Bank of America. According to the Piper Sandler Taking Stock With Teens poll, the environment was rated as the top political and social issue by teenagers in the fall of 2021, suggesting potential Allbirds buyers in the future.

ESG as a differentiator

“Allbirds’ focus on sustainability will be a key differentiator from both a consumer and investor perspective,” wrote Bank of America analysts. “The uniqueness of sourcing sustainable materials (e.g. wool, tree, sugar cane) helps Allbirds stand out from the competition and is likely to grow further as consumers incorporate higher sustainability standards into the products they buy. The other benefit is the amount of investment dollars that continue to flow into ESG funds. ”

BofA has given the share a buy rating and a price target of USD 23.

Allbirds stock traded below $ 19 on Tuesday.

Piper Sandler noted that the company’s “firm commitment to sustainability is a key differentiator from competitors and will create tens of millions of loyal consumers over time.”

“To this end, BIRD plays several structural investment themes, including: consumers shifting to a direct relationship with brands, an acceleration of leisure and sports products, and an increasingly relevant ESG conversation for consumers and investors alike,” wrote the analysts at Piper Sandler and placed a Buy rating and a price target of $ 26 on the stock.

Stifel analysts wrote that a company-owned survey of more than 11,000 consumers in six countries showed a “broad market agreement” on the trend towards “appreciation of sustainability” and the “deterioration of fashion”, which according to their own statements about the “ethos of the brand” belong .”

“Allbirds has uniquely aligned its brand and its activities to megatrends that will drive consumer spending for the foreseeable future,” write the analysts at Stifel. “The leading position in the comprehensive market introduction of sustainable materials has gained credibility with conscious consumers, suppliers and potential partners along the entire value chain.”

Stifel has given the stock a buy rating with a 12-month price target of $ 25.

The challenges of staying sustainable

Some analysts noted the challenge of maintaining that sustainability crown in a highly competitive sneaker and apparel market, especially as the company begins to compete more strongly in the performance space.

“There is a threat from larger established companies like Nike and Adidas who are investing heavily in commercializing similar natural and sustainable materials.

In 2020, Allbirds and Adidas teamed up to develop performance running shoes with no carbon footprint. Around 10,000 pairs have been released so far, with a major release planned for the spring / summer 2022 season.

Allbirds launched its first running shoe, the Tree Dasher, in 2020 and launched a running apparel collection this summer.

“Allbirds is making a concerted effort to expand into the performance sports and apparel space,” wrote analysts for the Telsey Advisory Group. “The athletic footwear industry is competitive with established players Nike and Adidas having significant market shares with 39% and 19% respectively in 2020. In addition, there are a number of rapidly growing brands including On and Hoka, which serve a similar consumer to Allbirds. “

Add to this the challenge of maintaining this commitment to ESG practices.

Cowen analysts wrote that sustainable practices in the footwear industry are not yet to scale, “there is often a higher ‘business cost’ to sourcing materials that meet the company’s sustainability requirements in the short term until availability and acceptance become more prevalent.” also warned of “reputational risk if BIRD is unable to meet ESG standards”.

Stifel also pointed out the reputational risk associated with ESG practices.

“The foundation of the Allbirds brand is its reputation for positive environmental awareness. This means that the brand must be above reproach, ”write the Stifel analysts. “Any environmental misstep or exaggeration of environmental claims would receive significant press and social media coverage and likely have an impact on the brand’s reputation and demand for Allbirds products.”

Originally, Allbirds said it planned to go public as part of the “first sustainable public stock offering” or SPO. In her first S-1 filing with the SEC in August, she outlined a framework that would be drawn up in consultation with outside groups that would set out a variety of environmental, sustainability, and governance standards that she would need to meet.

However, Allbirds removed or weakened the wording surrounding the framework in subsequent editions of its prospectus, including the deletion of a line that other companies could also follow the SPO framework. Allbirds CFO Mike Bufano told the Financial Times that the company had received feedback from the SEC that prompted the changes.

Securities and Exchange Commission chairman Gary Gensler has stated on numerous occasions that the agency is evaluating several things related to ESG, including establishing a task force on climate and ESG enforcement.

“I also asked the employees to consider potential requirements for companies that have made forward-looking climate commitments or that have significant activities in legal systems with national requirements in order to achieve specific, climate-related goals,” said Gensler in June.

However, it is expected that the focus on ESG for consumers and investors will only increase, which will present a significant opportunity for companies like Allbirds to further increase their exposure.

“You can see regulators planning action, analysts asking ESG questions at quarterly conference calls, shareholders bringing the issue up at annual general meetings – all of these were things that were once niche but caught on,” said Aron Cramer, President and CEO of Business for social responsibility, said CNBC. “The focus on ESG as an essential element of the business strategy has grown significantly.”

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