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The Ratings Game: Allbirds has big growth potential but competitors like Nike could be a speed bump, analysts say

Analysts are in agreement about the disruptive potential of the Allbirds Inc. brand, though JPMorgan says tough competition from the giants in the athletic world could be a speed bump to that momentum.

“Allbirds is competing with highly established and scaled players in the lifestyle apparel/footwear & sportswear category, including the likes of Nike and Lululemon

(w/ Lululemon expected to launch footwear in 2022),” analysts wrote in an initiation note published Monday.

“There is a threat from larger incumbent players such as Nike & Adidas investing heavily in similar natural & sustainable materials commercialization capabilities, noting Allbirds doesn’t maintain patents on the materials or design, which could impact Allbirds’ competitive positioning,” they wrote.

JPMorgan rates Allbirds

stock at neutral with a $21 price target.

Allbirds stock began trading on Nov. 3, jumping 63% above its $15 IPO price in its debut. Shares were trading Monday at $19.03.

The Renaissance IPO ETF

has edged up 0.5% for the year to date while the benchmark S&P 500 index

has run up 24.3% for the period.

Allbirds is focused on being an eco-friendly option in the fashion world, with sustainable fabric innovation a core area of the business.

See: Allbirds IPO: 5 things to know about the newly public eco-friendly shoe company

Both Nike

and Adidas

have taken steps into more sustainable processes and merchandise. Nike launched a refurbished sneaker program earlier this year, for example. And Adidas announced a partnership with resale business ThredUp Inc.

in October and has previously partnered with Allbirds for a launch in 2022.

Still, Allbirds’ focus on sustainability is viewed by research groups as a growth driver for a company that’s starting with low name recognition.

“Allbirds is developing solutions in areas of CO2 reduction and materials innovation (non-synthetics) that are disrupting the softlines industry, which creates meaningful product differentiation and separation in our Truvalue ESG related scoring metrics,” wrote Cowen analysts in their initiation.

“According to our proprietary survey, at the path of purchase, 82% of consumers aged 18-34 view the social impact and sustainability of a brand as being either very important (40%) or somewhat important (42%).”

Cowen rates Allbirds stock at outperform — the equivalent of buy — with a $24 price target. Cowen also gives Allbirds an ESG score of 60 out of 100. A score of 50 represents a neutral impact, according to the research group.

Also: Dick’s Sporting Goods partners with Nike for digital rewards platform

Stifel rates Allbirds stock a buy with a $25 target price.

“Allbirds is a sustainability pioneer, and the brand ethos aligns with consumer
megatrends for conscious consumerism and casualization,” analysts said.

Allbirds’ direct-to-consumer (DTC) business model also gives the company an advantage.

“Relative to more wholesale dependent competitors, the digital and retail DTC model supports both more product value for the consumer and more profit per unit for Allbirds,” Stifel said.

Morgan Stanley started coverage of Allbirds with a buy stock rating and $23 price objective.

“With an aided brand awareness of only 11% in the US, we see opportunity for its innovative, sustainable product development to capture market share in the $1.8 trillion global athletic footwear and apparel market,” analysts said.

“Allbirds’ digitally-led, all direct to consumer retail distribution strategy has resulted in a deep understanding of its customer and 98% of sales at full price.”

KeyBanc Capital Markets has been following Allbirds from its early days, and says the company’s origins in sustainability will be an asset going forward.

“Within the lifestyle brand space, we think it will be particularly difficult to adopt this construct given the still dominant trend of wholesale and the difficulty in developing and working with sustainable and high-performing materials,” analysts said.

“We believe that Allbird’s structure as a DTC brand gives it significant latitude to adopt sustainability as a core product attribute across the entire line of products.”

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