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On Monday, Stifel analysts upgraded Scotts Miracle-Gro shares (NYSE:SMG) from Hold to Buy, while also reducing the price target to $70.00 from the previous $78.00. The upgrade comes after observing a significant decrease in the company’s stock price, which fell by 28% since the late January peak, in contrast to the S&P 500’s 2.7% decline over the same period. This decline has brought Scotts Miracle-Gro’s shares to trade at just under 15 times projected fiscal year 2026 earnings per share (EPS), which is considered a discount compared to its consumer staples peers.
Stifel’s analysts believe that the current market valuation of Scotts Miracle-Gro significantly undervalues the company’s potential for a strong near-term earnings recovery and its advantageous long-term growth outlook. This view aligns with InvestingPro analysis, which indicates the stock is currently undervalued, with six analysts recently revising their earnings estimates upward. This confidence is rooted in the U.S. Consumer business’s unparalleled position of strength. While acknowledging the risks associated with March and April weather trends, which could impact the gardening season, the analysts suggest that the current stock price already accounts for the possibility of a poor season. This would potentially delay, but not prevent, the anticipated robust earnings recovery, which is expected to see a compound annual growth rate (CAGR) of 23% from fiscal year 2024 to fiscal year 2027.
Stifel’s analysts believe that the current market valuation of Scotts Miracle-Gro significantly undervalues the company’s potential for a strong near-term earnings recovery and its advantageous long-term growth outlook. This view aligns with InvestingPro analysis, which indicates the stock is currently undervalued, with six analysts recently revising their earnings estimates upward. This confidence is rooted in the U.S. Consumer business’s unparalleled position of strength. While acknowledging the risks associated with March and April weather trends, which could impact the gardening season, the analysts suggest that the current stock price already accounts for the possibility of a poor season. This would potentially delay, but not prevent, the anticipated robust earnings recovery, which is expected to see a compound annual growth rate (CAGR) of 23% from fiscal year 2024 to fiscal year 2027.
The upgrade by Stifel reflects an optimistic view of Scotts Miracle-Gro’s future performance, despite the reduced price target. The analysts’ perspective is that the current market valuation presents an attractive risk/reward scenario for investors, with the potential for substantial earnings growth in the coming years.
In other recent news, Scotts Miracle-Gro Company reported its Q1 2024 earnings, exceeding expectations with a reported loss of $0.89 per share compared to the anticipated loss of $1.24 per share. The company’s revenue also surpassed forecasts, reaching $417 million against the expected $392.29 million. This revenue increase was driven by a robust 11% growth in the U.S. consumer segment, while the Hawthorne segment saw a significant decline of 35%. The company demonstrated a substantial improvement in its gross margin, which rose over 750 basis points to 22.7%. Despite these positive earnings and revenue results, the stock experienced a notable decline in pre-market trading. Looking ahead, Scotts Miracle-Gro anticipates low single-digit growth in U.S. consumer sales for the full year and is considering a potential separation of the Hawthorne business. The company plans to invest $40 million in brand support and innovation as part of its strategic initiatives.
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