BofA Digs Up The Dirt On Scotts Miracle-Gro

Scotts Miracle-Gro Co’s SMG shares have declined by 25% over the month, with concerns around store closures and leverage, according to BofA Securities.

The Scotts Miracle-Gro Analyst

Christopher Carey maintained a Buy rating for Scotts Miracle-Gro, with a price target of $135.

The Scotts Miracle-Gro Thesis

To some extent, the recent pullback in Scotts Miracle-Gro’s stock was company specific, Carey said. He cited two reasons for Wall Street’s concerns.

First, prospects of a shutdown in key home and hardware stores, which is a major risk to seasonal lawn and garden products. The analyst pointed out, however, that around 60% of Scotts Miracle-Gro’s sales were generated from Home Depot Inc HD, Lowe's Companies, Inc. LOW and Walmart Inc WMT and these stores are deemed critical and will remain open.

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The second major concern is around the company’s leverage, but Scotts Miracle-Gro has “ample earnings power to cut a turn from leverage and buy back stock, if desired.”

Carey said the company’s fundamental outlook remains intact and may even be better in some segments, while its valuation has taken a big hit amid the broader market sell-off.

Weather has been favorable and the growing number of people being housebound is likely to benefit the garden and hydroponic segments, given the rise in cannabis demand, the analyst said.

SMG Price Action

Shares of Scotts Miracle-Gro had declined by 4% to $85.87 at time of publication Friday.