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On Tuesday, Stifel analysts reaffirmed their Buy rating and $70.00 price target for Scotts Miracle-Gro shares (NYSE:SMG), currently trading at $61.50 with a market capitalization of $3.55 billion. The firm’s confidence in the company’s unique market position remains strong despite broader market concerns such as tariff and labor risks, as well as recession fears that have impacted high-ticket discretionary spending. According to InvestingPro data, analyst targets range from $70 to $100, suggesting significant upside potential.
The endorsement came after Stifel hosted Scotts Miracle-Gro’s Interim CFO/CAO Mark Scheiwer and IR Brad Chelton at the Second Annual Stifel Consumer Ski Summit in Jackson Hole, Wyoming. During the summit, a series of meetings and investor presentations were held, which bolstered the analysts’ belief in the company’s ability to navigate through current market challenges.
Stifel’s analysts noted that while Scotts Miracle-Gro had experienced a 20.7% decline in share price from its late January peak, compared to a 6.6% decrease in the S&P 500, the current stock valuation presents an attractive risk/reward scenario. They pointed out that the market has likely already factored in a poor season, which would only delay, not prevent, the anticipated robust earnings recovery.
The analysts project a compound annual growth rate (CAGR) of 23% in earnings per share (EPS) from FY24 to FY27. While currently not profitable over the last twelve months, InvestingPro analysis indicates the company is expected to return to profitability this year, with a "GOOD" overall financial health score. This outlook suggests that any concerns regarding a weaker start to the year and private label risks are resolvable issues when set against the company’s significant underperformance.
In their commentary, Stifel analysts acknowledged the risks associated with weather visibility, which can affect Scotts Miracle-Gro’s business, given its reliance on seasonal sales. However, they believe that the current stock price has already accounted for the potential of a poor season, which would postpone but not negate the strong earnings recovery they forecast for the coming years.
In other recent news, Scotts Miracle-Gro reported its Q1 2024 earnings, which exceeded analyst expectations. The company posted a loss of $0.89 per share, which was better than the anticipated loss of $1.24 per share. Revenue also surpassed forecasts, reaching $417 million, compared to the expected $392.29 million. This growth was primarily driven by a significant increase in U.S. consumer volume, although the Hawthorne segment experienced a 35% decline in sales. Gross margins improved substantially, rising over 750 basis points to 22.7%.
In addition to these financial results, Stifel analysts upgraded Scotts Miracle-Gro’s stock rating from Hold to Buy, despite reducing the price target from $78.00 to $70.00. The analysts cited the company’s attractive dividend yield and potential for earnings recovery as reasons for the upgrade. They also highlighted the company’s strong position in the U.S. consumer market and its potential for long-term growth.
Scotts Miracle-Gro is also making strategic investments, including $40 million in brand support and innovation. The company is considering a potential separation of its Hawthorne business to focus on its core consumer operations. These developments indicate a proactive approach to strengthening its market position and addressing current challenges.
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