Raymond James Downgrades Scotts Miracle Gro On Valuation

The bullish case for consumer lawn and garden products company Scotts Miracle-Gro Co SMG can no longer be justified after a 30-percent move higher since late December, according to Raymond James.

The Analyst

Raymond James' Joseph Altobello downgraded Scotts Miracle-Gro from Outperform to Market Perform and removed an $80 price target.

The Thesis

Scotts Miracle enacted a price increase in early January, and the impact so far has been generally well-received by retailers due to the greater strategic importance of its products, Altobello said in the Wednesday note.

The Hawthorne hydroponics business is showing signs of stabilization, as management said at an industry conference that pro forma sales rose at a double-digit rate in February on top of a double-digit growth rate in January, the analyst said. 

The fertilizer maker is approaching difficult comps ahead, as the third quarter of 2018 benefited from a later than usual start to the lawn and garden season, Altobello said. In addition, U.S. consumer sales growth is likely to moderate from a high single-digit rate in the first half of 2019 to flat if not down in the back half of the year, he said. 

Shares of Miracle-Gro are trading near 17.6 times Raymond James' 2019 adjusted EPS estimate of $4.45, which is consistent with the three- to five-year historical average, the analyst said.

Given the potential for sales to drop at the end of the year, the stock's potential for multiple expansion moving forward is limited, Altobello said. 

Price Action

Scotts Miracle-Gro shares were trading down 1.24 percent at $77.22 at the time of publication Wednesday. 

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Photo courtesy of Scotts Miracle-Gro.