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.
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.
On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website unless those persons comply with certain safeguards, procedures, and disclosures.
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.