This report is an updated version of the report published on 13 May 2022 at 10:20 AM New York Time, USA (GMT-4)

The Scotts Miracle-Gro Company

SMG Details

The Scotts Miracle-Gro Company (NYSE: SMG) is among the world’s most prominent brands of branded consumer products for lawn and garden care. It has the industry’s most recognized brands, and its Scotts®, Miracle-Gro® and Ortho® brands are market-leading in their categories.

Result Performance for the Second Quarter Ended 2 April 2022 – (Q2FY22)

• The company reported sales of $1.68 billion during the quarter, reflecting a decrease of 8% from $1.83 billion reported in Q2FY21. Sales were impacted by a decline of 44% in Hawthorne segment to $202.6 million.
• There has been an improvement in SG&A expenses with a decrease of 12% to $204.7 million, owing to lower accruals for variable compensation and other control measures.
• GAAP income from continuing operations stood at $276.5 million, or $4.94 per diluted share compared with $311.1 million, or $5.44 per diluted share, for Q2FY21
• The Group has also announced the acquisition of Cyco by Hawthorne for $34 million and contingent consideration of up to $10 million.

Source: Company Reports, Analysis by Kalkine Group

Outlook

The company has adjusted sales outlook for U.S. Consumer and Hawthorne to be at the low end of guidance in FY22. However, the company is focused on reducing and managing costs within the Hawthorne operation and will look to arrive at previous levels of profitability as soon as possible.

Key Risks

The company is prone to the impacts of climate changes and has been particularly affected by the spring weather, as it broke out two to three weeks later than normal. Surge in commodity prices, and lower fixed cost leverage are further expected to put pressure in EPS during H2FY22. 

Valuation Methodology: EV/EBITDA Based Relative Valuation (Illustrative)

Technical Overview

Daily Price Chart

Source: REFINITIV, Note: Purple color line reflects Relative Strength Index (14-Period)

Stock Recommendation

The company has delivered a 6-month return of ~-43.04%. The stock is trading lower than the average price of the 52-week low-high range at $90.38–$240.74, respectively.

The stock has been valued using EV/EBITDA multiple based relative valuation (on an illustrative basis). The target price so arrived reflects a rise of low double-digit (in % terms). A slight discount has been applied to peer average EV/EBITDA multiple (NTM basis), considering the muted guidance by the management.

Considering the factors above, we give a “Speculative Buy” recommendation on the stock at the current market price of US$97.65 per share, as of 13 May 2022, at 09:39 AM New York Time, USA (GMT-4).  

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

The Scotts Miracle-Gro Company (SMG) is a part of Kalkine’s Global Big Money Product

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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