Grow Your Portfolio With Scotts Miracle-Gro (SMG)

Scotts Miracle-Gro Rises After Guidance Update

It was just two weeks ago that analysts at Raymond James gave Scots Miracle-Gro (SMG) a double-downgrade from Strong Buy to Market Perform. According to them, the bull-case inspired by the pandemic was largely played out and the valuation was high. Analyst Joseph Altobello noted that Q1 orders were goosed by stay-at-home trends but didn’t think those trends would last. Based on today’s news, it looks like he was wrong.

Today, Scott’s Miracle-Gro issued an update to their guidance that puts both adjusted EPS and revenue well above the current consensus. The company was expecting a solid 6-8% increase for full-year 2020 revenue but now expects results in the range of 16% to 18%. This puts revenue in the range of $3.66 to $3.73 billion versus the consensus expectation of $3.44 billion. On the EPS end of things, adjusted earnings are expected in the range of $5.65 to $5.85 versus the $5.40 consensus.

Frankly, I am not surprised. It was just a week or so ago that Tractor Supply Co emerged as the most virus-resistance stock on the market, largely due to stay-at-home gardening trends. I, for one, have put some effort into my own lawn, not because I want the grass to be so pretty but because I need a good turf for my kids to play on.

It’s Not Just About Grass, Lawn Grass I Mean

And the company’s strength is not limited to the core business. Scotts Miracle-Gro’s cannabis-focused subsidiary Hawthorne is blowing consensus figures out of the water too.

After a slow start, one of the earliest major investments in U.S. cannabis is paying off. The company already updated guidance for Hawthorne once this year and they did it again today. Now, SMG is expecting to see Hawthorne revenue to grow nearly 50% for the full year, up from a mere 35% announced earlier this spring.

Hawthorne is in the business of manufacturing, selling, and setting up commercial-quality hydroponic grow operations and is not limited to cannabis. The company has a wide range of products from hobby level through full-scale industrial needs to suit any kind of agricultural operation. Demand is high across all product lines.

Dividends And Dividend Growth Are In The Forecast

Along with solid growth, Scotts Miracle-Gro also has dividends and dividend growth in the forecast. At today’s prices, the 1.6% yield isn’t that great but it is backed up by earnings, cash-flow, a growth outlook, and a history of past increases. Based on today’s guidance the odds of an 11th consecutive increase are high and more, the company may also issue a special dividend as it has done in the past.

The Analysts Are Bullish, But Not Bullish Enough

The average analyst rating is bullish but that doesn’t really give the full picture. Out of the nine current ratings, four are bullish with four neutral and one bearish. With the company raising the full-year guidance this sets the market up for a round of upgrades that could lift the share price over the long-term.

The current consensus price target is $139.50, in-line with current price action, so an upgrade or two, or at least a price target increase, could be what it takes to get this stock moving higher. On a technical basis, the stock is looking rather bullish and could easily break out to a new high very soon.

Today’s news has the stock up more than 5.5% in the premarket. This puts shares price just below the very-recently set all-time high and confirms support at the short-term EMA. The all-time high, I might add, was set post-correction. The indicators are still weak but are consistent with a test of support with a bullish trend and set up to fire bullish signals with today’s open. The only caveat I have at this time is resistance at the previous all-time high. This level may contain price action so new investors are cautioned to wait.

A break to new highs would be a signal to buy but, if it doesn’t come right away, there is another option. Price action may close the gap formed at today’s open and if it does, it would provide another point of entry into this investment.