The Scotts Miracle-Gro Company

SMG Details

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

Q1FY22 Results Performance (For the quarter ended January 1, 2022)

• Company-wide sales declined by 24% to $566.0 million during the quarter, in line with a pre-announcement of expected results issued on January 4 and the sales for the Hawthorne segment reduced by 38% to $190.6 million.
• The company-wide GAAP and non-GAAP adjusted gross margin rates reduced to 21.0% compared with 25.5% and 26.7%, respectively, a year ago mainly due to a decrease in fixed cost leverage as well as higher material, warehousing and distribution costs.
• The company reported a seasonal loss from continuing operations of $0.90 per share during the quarter.

Source: Analysis by Kalkine Group

Declared Quarterly Dividend

The board of directors of the company, on 24 January 2022, have approved the payment of a cash dividend of $0.66 per share. The dividend will be paid to the shareholders on 10 March 2022.

Key Risks

The prevailing COVID-19 pandemic could have an adverse impact on its business, results of operation, financial condition and/or cash flows. Further, it is exposed to the risk of changes in regulations or regulatory enforcement priorities that could lead to an increase in its costs or restrict its ability to market all of its products.

Outlook

Driven by the better-than-expected result in U.S. Consumer, along with the effect of further pricing actions that will be implemented in the third quarter, the company has raised its full-year sales guidance in the segment to between +2% to -2% against its earlier range of flat to -4%. Besides, the company intends to consolidate U.S. lighting manufacturing for Hawthorne into a single location and move the operations of the recently acquired assembly facility to its Santa Rosa, California facility. The consolidation of its manufacturing footprint is likely to reduce the per-unit price of some of its most important LED lighting fixtures and will fortify Hawthorne’s competitive position in the years to come.

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 stock has been valued using EV/EBITDA multiple based relative valuation (on an illustrative basis) and the target price so arrived reflects a rise of low double-digit (in % terms). A slight premium has been applied to peer average EV/EBITDA multiple (NTM basis) considering better-than-expected results in U.S. Consumer segment in Q1FY22 as well as decent outlook.

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.

Considering the aforementioned factors, we give a “Speculative Buy” recommendation on the stock at the current market price of US$129.08 per share (Time: 10:22 AM, NY, USA) on 24^th February 2022.

The Scotts Miracle-Gro Company (NYSE: 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