Cannabis rally pushes Scotts Miracle-Gro to 'fair value' level: analyst

By Steve Gelsi

Raymond James downgrades Scotts Miracle-Gro to market perform after stock rises 15% in 2024

Raymond James on Monday cut its rating on Scotts Miracle-Gro Co. to market perform from strong buy after a runup in its stock price has left the company at roughly fair-market value.

Scotts Miracle-Gro's stock (SMG) fell 0.3% in morning trades.

Prior to Monday's trades, the stock had risen about 15% so far in 2024, as optimism has built around the re-scheduling of cannabis, as well as pending interest rate cuts by the U.S. Federal Reserve.

Also read: Cannabis stocks extend gains after Biden White House shows support of marijuana reforms

Scotts Miracle-Gro has exposure to the cannabis business both through its core sales of Miracle-Gro fertilizer to help marijuana plants grow, as well as its Hawthorne hydroponics growing equipment business.

At a closing price of $73.35 a share on Friday, Scotts Miracle-Gro has exceeded the $70 price target by Raymond James.

Raymond James analyst Joseph Altobello said SMG's stock has seen tailwinds from optimism in the cannabis sector and lower interest rates that will ease the interest burden for Scotts Miracle-Gro's debt, as well as the company's robust first-quarter results on Feb. 7.

At that time, the company reported healthy 8% growth in its point-of-sale business and said it was on track to reach its 2024 guidance.

"In addition, there's been some optimism on the regulatory and legal fronts with respect to cannabis, including speculation that the Drug Enforcement Administration may look to reclassify it from a Schedule I to a Schedule III drug; this would greatly benefit a struggling U.S. cannabis industry and by extension SMG's Hawthorne hydroponics segment," Altobello said.

Furthermore, Fed Chairman Jerome Powell's comments last week regarding the prospect for future interest-rate cuts "should disproportionately benefit highly-levered companies such asSMG ," he said.

Scotts Miracle-Gro is due to report its second-quarter results on May 1.

It's expected to report earnings of $3.23 a share on revenue of $1.46 billion, according to FactSet consensus estimates.

-Steve Gelsi

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03-25-24 1035ET

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