Analyst Note| Seth Goldstein, CFA |
On Jan. 4, narrow-moat Scotts Miracle-Gro announced two acquisitions made by its Hawthorne segment. The company also announced updated fiscal 2022 guidance for a decline in Hawthorne sales, despite the acquisitions, due to a slowdown in the cannabis market. We have reduced our near-term outlook for Hawthorne, but our long-term outlook for high-single-digit average annual growth is unchanged. Having updated our model to reflect the acquisition and updated guidance, as well as our reduced U.S. corporate tax rate assumptions, we are reducing our fair value estimate to $158 per share from $160. Our narrow moat rating is unchanged. We see the shares as currently fairly valued, trading near our fair value estimate and in 3-star territory.