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 3rd 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 1st 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.
Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.
Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.
There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.
You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.
The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.
Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.
Please also read our Terms & Conditions and Financial Services Guide for further information.
Employees and/or associates of Kalkine and its related entities may hold interests in the securities or other financial products covered in this report or on the Kalkine website. Any such employees and associates are required to comply with certain safeguards, procedures and disclosures as required by law.
Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.