Scotts Miracle-Gro SMG has benefited from its ability to expand during the coronavirus economic downturn that has seen more consumers spend money on home improvement-style projects during the lockdown. SMG shares have jumped 24% in 2020, against the S&P 500’s 7% decline, and the company just upped its full-year guidance.
Growing Portfolio & Recent Strength
Many people know Scotts Miracle-Gro because of its consumer lawn and garden products, which includes Ortho. The company also owns indoor and hydroponic leader The Hawthorne Gardening Company. This helps Scotts Miracle-Gro gain huge exposure to the growing marijuana industry, as well as indoor farming in general—which both have potential to boom over the next several decades.
In the first quarter of fiscal 2020, SMG’s U.S. consumer segment sales popped 8%, while Hawthorne revenue jumped 41% to help lift overall revenue by 23%. The company then followed up its strong first quarter, with another 16% sales expansion in Q2—the period ended on March 28. Hawthorne once again helped drive this expansion, with sales up 60% “driven by continued demand for indoor growing products.” Meanwhile, its U.S. consumer segment popped 11%.
Last quarter marked Scotts Miracle-Gro’s seventh straight period of 15% of higher revenue growth. Then on June 8 SMG upped its fiscal 2020 sales guidance to between 16% to 18%, up from the 6% to 8% guidance it provided in early May. More specifically, SMG now expects its U.S. consumer segment to climb between 9% and 11%, up from 1% to 3%, with Hawthorn’s growth up to 45% to 50% against the prior 30% to 35%.
“Consumer purchases of our products at our largest four retail partners were up 44% in May, and we are now up approximately 19% year-to-date at the time of this announcement,” CEO Jim Hagedorn said in prepared remarks. “An unprecedented number of consumers planting and maintaining gardens… Likewise, the story at Hawthorne is one of exceptional demand. Even against extremely difficult year-over-year comparisons, we continue to see strong sales growth across the product portfolio in both older markets like California and Colorado, as well as emerging ones like Michigan, Oklahoma and Florida.”
With this in mind, our Zacks estimates call for SMG’s third quarter revenue to climb 13%, with Q4 projected to jump 16.5%. And the company’s full-year FY20 revenue is projected to surge 17.3% to reach $3.70 billion, which would come on top of 2019’s nearly 19% sales expansion.
At the bottom end, Scotts Miracle-Gro’s adjusted Q3 EPS figure is projected to climb 7.7%, with its fiscal year figure expected to jump 30.4% to $5.83 a share.
Along with its strong 2020 climb that includes a 70% jump from the market’s March 23 lows, which crushes Home Depot’s HD 50%, fellow fertilizer firm Yara International’s YARIY 34%, and the S&P 500’s 35%, SMG shares are up 55% in the last two years. Despite its overall strength, SMG closed regular trading Friday at $133.06 per share, down roughly 13% from its recent highs.
Scotts Miracle-Gro is currently trading at a discount compared to its one-year highs of 2.4X, at 2.1X forward 12-month sales. On top of trading well below the S&P 500’s 3.4X average, SMG’s 1.74% dividend yield comes in well above its industry’s 0.71% average.
Scotts Miracle-Gro’s positive earnings revisions activity helps it grab a Rank #1 (Strong Buy) right now, alongside its “A” grade for Momentum in our Style Scores system.
In the end, SMG appears to be a solid longer-term bet that might also be one of the best non-pure play investments in the growing marijuana industry. And finding dividend-paying stocks that are poised to grow seems prudent as coronavirus volatility pops up once again.
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