This report is the updated version of the report uploaded on 24 January 2023 at 10:20 AM PST.

The Scotts Miracle-Gro Company

SMG Details

The Scotts Miracle-Gro Company (NYSE: SMG) is a marketer of name-brand home and garden care products.

Financial Results

• For the quarter ended September 30, 2022, the company-wide sales witnessed a fall of 33% to $493.6 Mn. U.S. Consumer segment sales fell 18% to $302.1 Mn from $369.4 Mn.
• On 3^rd August 2022, SMG announced the cross-functional Project Springboard initiative in order to expand margins, improve FCF as well as strengthen the balance sheet. Notably, the first phase of this initiative achieved $100 Mn of annualized savings split between fiscal 2022 and fiscal 2023.
• The company-wide sales on the full-year basis fell 20% to $3.92 Bn as compared to $4.93 Bn a year ago.

Key Updates

• SMG announced that its Board of Directors approved the payment of the cash dividend of $0.66 per share.
• The company would be releasing its first quarter financial results on 1^st February 2023.

Outlook

For fiscal 2023, the company is expecting low single-digit percentage growth in adjusted operating income as compared to fiscal 2022. SMG is also expecting mid-single digit percentage growth in adjusted EBITDA as compared to fiscal 2022. The company expecting free cash flow of $1 Bn over the upcoming 2 years.

Key Risks

The disruptions in availability or increases in the prices of raw materials or fuel could impact SMG’s business. Also, COVID-19 pandemic could have a significant impact on the business, results of operation, financial condition and/or cash flows.

Fundamental Valuation

EV/EBITDA Multiple Based Relative Valuation

Stock Recommendation

The stock has been valued using EV/EBITDA based relative valuation (on an illustrative basis) and the target price so arrived reflects a decline of low double-digit (in % terms). A slight discount has been applied to EV/EBITDA Multiple (NTM) (Peer Average) considering the risks associated with the business. Also, climate change as well as unfavorable weather conditions could impact the financial results.

Resultantly, it is prudent to liquidate the stock at the current levels.

Hence, a ‘Sell’ rating is assigned on the stock at the current market price of USD 68.29 (as of 24 January 2023 at 06:31 am PST). 

Technical Overview:

Daily Price Chart

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

Note 1: Past performance is neither an indicator nor a guarantee of future performance.

Note 2: The reference date for share price chart and stock valuation is based on January 24, 2023. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.