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What's Behind Scotts Miracle-Gro's (SMG) Rally of 31% YTD?

Zacks Equity Research

The Scotts Miracle-Gro Company’s SMG shares have significantly outperformed the industry. The stock has rallied 30.9% so far this year against the industry’s 26.1% decline.

The company has a market cap of around $7.7 billion. Average volume of shares traded in the past three months was nearly 459.7K. It has expected earnings per share growth rate of 29.5% for fiscal 2020.

Let’s delve into the factors driving this stock.

Upbeat fiscal 2020 view and bright prospects of the Hawthorne business are major factors contributing to the company’s price performance.

In June, the company raised its fiscal 2020 guidance on the back of higher demand in the U.S. Consumer and Hawthorne segments. For fiscal 2020 (ending Sep 30, 2020), Scotts Miracle-Gro projects company-wide sales growth in the range of 16-18% compared with 6-8% growth expected earlier.

The upbeat view is supported by stronger growth in the U.S. Consumer unit, for which the company now expects 9-11% growth compared with the previous expectation of 1-3% increase. In the Hawthorne segment, it now expects sales growth of 45-50% for fiscal 2020 compared with 30-35% expected earlier.

Based on the above assumptions, the company now projects adjusted earnings per share in the range $5.65-$5.85 compared with $4.95-$5.15 expected earlier.

Further, the company is benefiting from synergies from the Sunlight Supply acquisition. The buyout provided Scotts Miracle-Gro with a modern and cost-efficient supply chain in the hydroponic industry.  The acquisition is expected to contribute to growth in adjusted EPS and total sales in fiscal 2020.

Earnings estimate revisions have a great impact on stock prices. Notably, the Zacks Consensus Estimate for Scotts Miracle-Gro’s fiscal third-quarter earnings has moved up 13.6% over the past two months.

The Scotts MiracleGro Company Price and Consensus

The Scotts MiracleGro Company Price and Consensus

The Scotts MiracleGro Company price-consensus-chart | The Scotts MiracleGro Company Quote

Zacks Rank & Other Key Picks

Scotts Miracle-Gro currently sports a Zacks Rank #1 (Strong Buy).

Other top-ranked stocks in the basic materials space include Sandstorm Gold Ltd. SAND, Harmony Gold Mining Company Limited HMY and Royal Gold, Inc. RGLD, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Sandstorm Gold has an expected earnings growth rate of 55.6% for 2020. The company’s shares have surged 63.3% in the past year.

Harmony Gold has an expected earnings growth rate of 264.3% for fiscal 2020. Its shares have returned 130.1% in the past year.

Royal Gold has an expected earnings growth rate of 66.2% for fiscal 2020. The company’s shares have gained 9.5% in the past year.

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