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Growth & Income

With spring officially here, growth and income investors may want to check out The Scotts Miracle-Gro Company (SMG - Snapshot Report).

Estimates for the company have been rising since management provided upbeat guidance at its annual Analyst Day in late February. Analysts are projecting 7% EPS growth in 2011 and 14% growth in 2012.

Scotts has also been buying back stock, and it doubled its quarterly dividend in 2010. It currently yields 1.7%.

Company Description

The Scotts Miracle-Gro Company is the world's largest marketer of branded consumer products for lawn and garden care. The company's brands include Scotts®, Miracle-Gro® and Ortho®, as well as the consumer Roundup® brand, which is marketed by Scotts and owned by Monsanto (MON).

Outlook

At its annual Analyst Day in Boca Raton, Florida on February 23, management stated that it expects sales growth of 4-6% in 2011 and earnings per share in the range of $3.60 to $3.70. The Zacks Consensus Estimate is within guidance at $3.64, representing 7% EPS growth.

Despite rising commodity prices, Scotts expects its gross margin to actually expand in 2011 due to favorable hedging.

Analysts are also predicting more growth in 2012. The Zacks Consensus Estimate is currently $4.13, equating to 14% EPS growth.

The company reports its results for the second quarter of 2011 on May 3. It is a Zacks #2 Rank (Buy) stock.

First Quarter Results

Scotts reported its results for the first quarter of 2011 on January 28. Net sales came in at $230.2 million, a decrease of 9% year-over-year.

The company reported a loss of 99 cents per share, 5 cents below the Zacks Consensus Estimate. Given the seasonality of the business, Scotts has historically reported a loss in Q1.

Returning Value to Shareholders

Scotts has been rewarding its shareholder through stock buybacks and a recent dividend hike.

In the third quarter of 2010, Scotts doubled its regular quarterly dividend to 25 cents. It currently yields 1.7%.

Excluding a very generous $8.00 per share special dividend in 2007, it was the company's first official dividend hike:

TUP: Tupperware Brands Corporation

Scotts also has a $500 million share repurchase authorization. Since the program's inception, it has repurchased a total of $50 million in shares, including 483,000 shares in the first quarter of 2011.

Valuation

After gaining nearly 20% since the beginning of the year, the stock has pulled back a bit and is currently trading about 6% off its 52-week high set in early April.

This could be a good entry point with shares trading at 15.8x forward earnings, a slight discount to the industry average of 16.4x. It sports a PEG ratio of 1.47.

The company was founded in 1868 in Marysville, Ohio. It has a market cap of $3.8 billion.

Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.

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