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On Monday, Jefferies analyst Jonathan Matuszewski changed the outlook for Scotts Miracle-Gro (NYSE:SMG) shares, upgrading the stock rating from Hold to Buy, despite lowering the price target to $69.00 from the previous $72.00. This adjustment reflects a positive stance on the company’s future financial performance. Currently trading at $51.41, near its 52-week low of $49.39, InvestingPro analysis suggests the stock is undervalued, with analyst targets ranging from $70 to $100.
Matuszewski’s optimism is based on several factors that could benefit Scotts Miracle-Gro. Notably, the company’s cost of goods sold (COGS) is only modestly affected by tariffs, with approximately 5% exposure. This limited vulnerability to international trade tensions is viewed favorably by the analyst. The company maintains a healthy current ratio of 1.88, indicating strong short-term liquidity.
Furthermore, the resilience of lawn and garden spending during economic downturns is seen as a strong point for Scotts Miracle-Gro. Matuszewski believes that as households look to save money, there’s a potential increase in do-it-yourself (DIY) activities over hiring professionals, which could serve as a tailwind for the company.
The analyst projects a robust growth in earnings before interest, taxes, depreciation, and amortization (EBITDA) for the fiscal year 2025, anticipating an increase of over 12%. This projection is coupled with the current valuation of the company, which Matuszewski finds attractive at approximately 10 times the enterprise value to EBITDA ratio for the calendar year 2025. While currently showing a loss in the last twelve months, InvestingPro data reveals analysts expect profitability this year, with an EPS forecast of $3.48. The company also maintains a significant 5.14% dividend yield, having consistently paid dividends for 21 consecutive years. For deeper insights into SMG’s valuation and growth prospects, access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.
In his analysis, Matuszewski emphasizes the attractiveness of stocks like Scotts Miracle-Gro that have minimal international sourcing exposure and possess defensive business models. He suggests that such companies could serve as "quality ’hide-outs’" for investors seeking to generate alpha, or excess returns, in a volatile market. Despite the stock’s 37.66% decline over the past six months, the company maintains a solid revenue base of $3.56 billion and generated $490 million in levered free cash flow over the last twelve months.
The upgrade to Buy status comes after recent investor meetings with Scotts Miracle-Gro’s management, which seem to have reinforced the analyst’s positive expectations for the company’s financial trajectory and strategic positioning.
In other recent news, Scotts Miracle-Gro reported its Q1 2024 earnings, surpassing expectations with a reported loss of $0.89 per share against the forecasted loss of $1.24 per share. The company’s revenue also exceeded projections, reaching $417 million compared to the anticipated $392.29 million. This performance highlights a significant improvement in the company’s gross margin, which rose over 750 basis points to 22.7%. Meanwhile, Truist Securities upgraded Scotts Miracle-Gro’s stock rating from Hold to Buy, maintaining a price target of $70, reflecting confidence in the company’s market positioning and valuation. Stifel analysts also maintained their Buy rating with the same price target, despite broader market concerns, and projected a compound annual growth rate of 23% in earnings per share from FY24 to FY27. Stifel previously upgraded the stock from Hold to Buy but reduced the price target from $78 to $70, noting the stock’s attractive valuation compared to its peers. These developments indicate a positive outlook for Scotts Miracle-Gro amid ongoing macroeconomic challenges.
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