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Bear of the Day: Scotts Miracle-Gro

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The Scotts Miracle-Gro Company (SMG - Free Report) is currently a Zacks Rank #5 (Strong Sell) with an overall VGM Score of an F – never a combination you want to see.

SMG is a leading producer and marketer of branded garden and consumer lawn products. The company’s product portfolio includes Scotts, Miracle-Gro, and Ortho. In addition, the company markets the herbicide Roundup.   

Share Performance

SMG shares have been stuck in a deep downtrend for the majority of the last year, with shares losing more than half of their value and extensively underperforming the S&P 500.

Zacks Investment Research
Image Source: Zacks Investment Research

This price action of SMG shares tells us one clear thing – sellers have been in complete control, pushing bulls out of the arena.

Valuation

In addition to disheartening share performance, the company’s shares could be considered overvalued, further displayed by its Style Score of an F for Value. The company’s forward earnings multiple resides at 17.6X, representing a substantial 154% premium relative to its Zacks Sector.

Zacks Investment Research
Image Source: Zacks Investment Research

Growth Estimates

Analysts have extensively lowered their earnings outlook across all timeframes over the last 60 days, a reason the company is ranked as a Zacks Rank #5 (Strong Sell).

Zacks Investment Research
Image Source: Zacks Investment Research

For the upcoming quarter, the Zacks Consensus EPS Estimate resides at $1.70, penciling in a nearly 60% drop in quarterly earnings year-over-year.

In addition, current fiscal year earnings are projected to plummet a double-digit 50%.

SMG’s top-line appears to be in rough shape as well; the $1.2 billion quarterly revenue estimate for the upcoming quarter pencils in a double-digit 25% year-over-year decline.

Furthermore, the annual revenue estimate of $4.1 billion reflects a disheartening 16% drop in sales from the previous year.

Bottom Line

SMG shares have been the victim of a deep double-digit valuation slash over the last year, with sellers remaining in complete control. This adverse price action, paired with overwhelmingly negative estimate revisions and elevated valuation levels, paints a grim picture for the company in the short term.

The company is a Zacks Rank #5 (Strong Sell) and a stock that investors will be better off staying away from for now.

Instead, investors should pivot to stocks that either carry a Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy) – the odds of reaping considerable gains are much higher within the companies that carry these ranks.


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