2023-05-08 08:08:56 ET
Scotts Miracle-Gro's ( NYSE: SMG ) stock rose on Monday was upgraded to Overweight from a previous investment rating of Neutral by analysts at JPMorgan. They said the maker of gardening and lawn products is likely to benefit from lower costs of raw materials such as urea, potash, polyethylene and diesel fuel.
The shares advanced 3.7% in premarket trading to $68.89.
“As a base case, its raw material pressure has come to an end,” Jeffrey J. Zekauskas, analyst at JPMorgan, said in a May 8 report. “Cost saving actions and higher production rates later in fiscal 2024 should also aid Scotts’ ( SMG ) earnings.”
JP Morgan kept its price target for Scotts Miracle-Gro’s ( SMG ) stock at $80, based on a multiple of 11 times estimated EBITDA for 2024.
“We estimate its free cash flow yield between 11% and 13%,” according to the report. “Over a three-year period, the company is capable of doubling in value based on a 12-times multiple of our 2026 EBITDA projection.”
Scott Miracle-Gro ( SMG ) also is poised to narrow the losses from its Hawthorne unit that makes products for marijuana growers such as hydroponic equipment.
“There is a much longer value runway in the event that Scotts ( SMG ) reports cannabis-related profits similar to historical good years,” according to JPMorgan. “Scotts ( SMG ) is now a very reasonable investment for investors with a one-year time frame or a three- to five-year investment horizon.”
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Scotts Miracle-Gro's stock gains on upgrade to Overweight at JPMorgan