Scott's Miracle-Gro (SMG) isn’t an unknown entity; it’s been around since 1868, and most of us have bought its potting soil, plant boosters and insecticides, or used the company’s services to attend to our lawn needs., notes Mike Cintolo, growth stock expert and editor of Cabot Top Ten Trader.
Scott’s green and white trucks are a fixture in most neighborhoods throughout the growing season. But what you may not know is that Scott’s has recently entered the "other grass" business—marijuana!
Last year, the company bought Sunlight Supply, the largest hydroponic distributor (products that help plants grow without soil) in the U.S., and combined it with its Hawthorne Gardening Company subsidiary to target professional growers, including cannabis producers.
Scotts predicted that this new division would garner annual sales of $600 million from more than 1,800 hydroponic retail stores in North America.
And that forecast now looks conservative! For 2019, Hawthorne’s sales rose by an astonishing 95%, to $671 million, and while that kind of growth isn’t likely to continue, Wall Street is looking for solid expansion going forward.
For its fiscal first quarter, Scott’s easily surpassed analysts’ estimates (it lost money, but that’s the norm for this seasonal business). Sales also beat estimates, coming in at $366 million, 23% higher than a year ago. For 2020, Scott’s is projecting sales growth of 5% or so, while analysts see the bottom line rising 15% (which is likely conservative).
A solid share buyback program (up to $750 million) and tidy dividend (1.9% annual yield) also help. Scott’s looks like a more conservative way to play the boom in marijuana production.
SMG bottomed with the market in late 2018 and had a great, persistent advance through July of last year. The stock went on to build a nice-looking launching pad, with some tightness in December just off its prior highs.
The breakout on earnings was powerful and, importantly, lasted four straight days. SMG has been tight since then despite the market’s day-to-day gyrations, another good sign. We’re fine taking a swing at it here.
