For most of us, Scotts Miracle-Gro (NYSE:SMG) is what we turn to when we're looking to make a top-notch vegetable garden, or give our indoor plants a shot of new life. The latest reports, however, suggest that the fertilizer kingpin is also a potentially big part of the marijuana industry. So much so, in fact, that the quarterly earnings report feature a first-of-its-kind occurrence for the company.
One Fantastic First For Scotts
Scotts turned in a spectacular quarter by virtually any standard. The company posted a profit of $0.39 per share, which may not sound like much until you compare it against Wall Street estimates. The estimates were fully expecting Scotts to lose $0.77 per share, which means that Scotts' actual profits were nearly triple estimates.
Revenue also came in above the estimates, with sales reportedly reaching $748.6 million against an expected total of $595 million even from FactSet. That's a little better than double the amount done the same time the preceding year, which came in at $365.8 million.
While the numbers by themselves were fantastic, they also represented one big new step for Scotts; this was the first time in the company's entire history—going back to 1868—that the company posted a profit for the first fiscal quarter. When you consider that Scotts is primarily a fertilizer company, this is to be expected; much of Scotts' target market is buried under a blanket of frozen water of varying depths at that time of year, so no one's really picking up much fertilizer except for the odd indoor houseplant.
Analysts Eager, Yet Concern is Growing
Meanwhile, over in the broader analyst pool—as determined by our latest research—the consensus view is still bullish, but slipping a bit. The company is currently rated a buy, though the ratios are turning a bit bearish.
The company has been rated a “buy” for the last month, and was rated one six months ago before slipping into “hold” territory three months ago. Six months ago, the company had three “hold” and three “buy” ratings to its credit. Three months ago, one of those “buy” ratings left consideration. A month ago, there was only one “hold” rating, there were three total “buy” ratings and one “strong buy” stepped in for the strongest ratings of the last six months. Today, the “strong buy” has left, and one new “buy” has emerged, leaving us at just one “hold” and four “buy” ratings.
The price target has only increased in the meantime. Six months ago, it stood at $130.80, before going to $136.50 three months ago. A month ago, it rose to $161.75 before reaching today's level of $203.80, which is also the first time the price target has represented downside potential. The stock currently trades at $239.62. Only two analysts have weighed in so far this year, with Raymond James upgrading to a “buy” and Truist hiking the price target from $180 to $250.
The Sneaky Surprising Pot Play
Scotts' gains have led to some surprising results; for the first time ever, the company is also planning to take out a Super Bowl ad, which may sound bizarre, but the full reasoning makes sense. The company, at last report, is now looking for between 20% and 30% sales growth for the Hawthorne Gardening Company, a division of Scotts that focuses mainly on materials for indoor and hydroponic growing. “Indoor and hydroponic growing” might be one of the best descriptors around for marijuana growing, which is typically grown year-round and thus needs a place where it can do so safely. Indoors is the perfect place, and Scotts—via Hawthorne—is looking to supply the necessary infrastructure to make indoor pot growing that much more readily available.
With marijuana legalization stepping up, and a new administration in place that will likely be open to the cause—not that the Trump administration was particularly anti-drug—that should put a whole new demand in place for the necessary tools to grow marijuana regardless of outside weather conditions. That puts Scotts right in the middle of a “shovels in a gold rush” scenario that's hard for investors to pass up.
Scotts is breaking new ground, both in terms of corporate achievement and market strategy. It's hard to not want to get in on some of that, and it may prove a fine idea to do just that. Scotts Miracle-Gro will likely prove the most roundabout pot play you can make, and one that doesn't stop at marijuana, either, for that extra added value.
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