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What's Driving Scotts Miracle-Gro's Rally of 44% in 6 Months?

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Shares of The Scotts Miracle-Gro Company (SMG - Free Report) have rallied 44.3% in the past six months compared with the industry’s 21.2% rise and the S&P 500’s 24.9% gain.

The company has a market cap of around $9 billion. Average volume of shares traded in the past three months was nearly 392.5K.

Let’s discuss the factors driving this Zacks Rank #1 (Strong Buy) stock.

Positive outlook, strong demand in the U.S. Consumer unit and bright prospects in the Hawthorne business are major factors contributing to the company’s price performance.

In July, Scotts Miracle-Gro revised its sales growth guidance for fiscal 2020.

In the U.S. Consumer unit, the company projects sales growth of 20-22% for the fiscal compared with 9-11% expected earlier. It now expects sales in the Hawthorne segment to rise 55-60% in fiscal 2020 compared with the previous guidance of 45-50%.

Based on these assumptions, Scotts Miracle-Gro now projects adjusted earnings per share for fiscal 2020 between $6.65 and $6.85 compared with $5.65-$5.85 expected earlier. Adjusted free cash flow is expected to be around $400 million, up from the earlier projection of nearly $350 million.

Further, it is likely to benefit from the healthy long-term prospects associated with the Hawthorne division. Notably, revenues in the Hawthorne unit surged 72% year over year in the fiscal third quarter, driven by strong demand in almost all categories.

The company is also gaining from synergies of the Sunlight Supply acquisition. The buyout creates unique competitive advantages for Hawthorne. It has provided Scotts Miracle-Gro with a modern and cost-efficient supply chain in the hydroponic industry.  

Moreover, earnings estimate revisions have greatest impact on stock prices. The Zacks Consensus Estimate for Scotts Miracle-Gro’s fiscal fourth-quarter earnings moved up 58.2% in the past two months. Also, the company’s earnings for fiscal 2020 are currently pegged at $6.82 per share that suggests year-over-year growth of 52.6%.

Other Key Picks

Some other top-ranked stocks in the basic materials space are Kinross Gold Corporation (KGC - Free Report) , Eldorado Gold Corporation (EGO - Free Report) and Yamana Gold Inc. (AUY - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Kinross has an expected earnings growth rate of 100% for 2020. The company’s shares have surged 79.7% in the past year.

Eldorado Gold has an expected earnings growth rate of 2,325% for 2020. Its shares have returned 26.9% in the past year.

Yamana has an expected earnings growth rate of 76.9% for 2020. The company’s shares have soared 77.6% in the past year.

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