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.

Results Performance for the Year Ended 30 September 2021 – (FY21)

• The sales stood at $4.93 billion in FY21, up 19% YoY. Sales in the U.S. Consumer segment rose to $3.20 billion in FY21, up 11% YoY driven by robust consumer demand throughout the year.
• Hawthorne sales grew by 39% to $1.42 billion, primarily driven by strong growth in all category segments in both emerging and legacy markets.
• GAAP earnings from continuing operations increased to $9.03 per diluted share in FY21 against $6.78 per diluted share in FY20. While Non-GAAP adjusted earnings stood at $9.23 per diluted share compared with $7.24 per diluted share in the prior year.

Source: Company Reports, Analysis by Kalkine Group

Outlook:

The company forecasts sales growth of 0–3% in FY22, with the U.S. Consumer segment sales to remain between 0–(-4)%. While Hawthorne sales are expected to grow by 8–12%, maximum growth is anticipated in the second half of the year. As a result, the non-GAAP adjusted earnings per share will be $8.50-$8.90, and the gross margin will decline by around 100-150 basis points. In addition, the company highlighted that it intends to repurchase ~$300 million in shares during FY22 in addition to the $113 million of share repurchases undertaken in FY21.

Risk:

The prevailing COVID-19 pandemic could adversely impact its business, operation results, financial condition, 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 its products. It is also prone to climate change and unfavorable weather conditions that could adversely affect its financial results.

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

Technical Analysis

Daily Price Chart

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

Stock Recommendation:

The company has delivered a 6-month and 1-year return of ~-24.28% and ~-2.04%, respectively. In addition, the stock is trading lower than the average of the 52-week high price of $254.34 and the 52-week low price of $139.20.

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). In addition, a slight premium has been applied to peer average EV/EBITDA multiple (NTM basis), considering its record financial results in FY21 and its intention to continue pursuing acquisition opportunities in FY22.

Considering the factors above, we give a “Buy” recommendation on the stock at the closing market price of US$165.88 per share, up by 0.07% as of 19^th November 2021.

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

Disclaimer

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