SunTrust Sees 22% Upside In Scotts Miracle-Gro, Upgrades To Buy

As Scotts Miracle-Gro SMG, which develops and sells products for lawn and gardens, prepares to enter its offseason, SunTrust became more optimistic about the company's stock.

The Analyst

SunTrust analysts led by William B. Chappell, Jr. upgraded Scotts Miracle-Gro from Hold to Buy and increased its price target from $80 to $100.

The Thesis

Scotts Miracle Gro's stock usually significantly outperforms the market from June to January, according to Chappell. Calling Scotts "the ultimate weather stock," Chappell wrote that investors avoid shares during the growing season because they "don't like to bet on weather." He noted that the growing season in the U.S. "largely ends by July 1."

Additionally, Scotts' debt levels tend to jump in its quarter that ends in March and bottom in its quarter that ends in September, CHappell stated. As a result, the stock is more attractive during the latter period.

The stock has "bottomed out," according to Chappell, who added that Scotts Miracle-Gro is being "increasingly" seen "as a call option on the cannabis legalization trend." In light of the latter phenomenon, the stock's floor should rise.

Price Action

The stock traded up more than 3 percent to $84.21 Tuesday afternoon.

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