Should you grow with Scotts Miracle-Gro?
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The Bamboo Breakdown is here to feed the research nerd in you. Every week, we pick a stock or an event and do a deep dive into it. What does the company do? What are the key risks? What’s the Bull vs Bear case and so much more.
Today, we’re talking about Scotts Miracle-Gro. Is it worth adding to your portfolio? We’ll take a deep dive and see what we find.
Key Takeaways
Scotts Miracle-Gro is an agrichemical manufacturing company that plays in both the agrichemical and cannabis industries.
The company owns The Hawthorne Gardening Company, the biggest supplier of hydroponic gardening supplies.
SMG is primed to take advantage of recent global shifts in cannabis, home improvement, and environmental issues.
Scotts Miracle-Gro Company is an American multinational corporation that manufactures and sells consumer lawn, garden, and pest control products such as grass seed, plant food, fertilizer, and weed control. The company also owns The Hawthorne Gardening Company, the largest supplier of horticulture, organics, hydroponics, and lighting supplies.
Scotts Miracle-Gro started out as the privately-owned O.M. Scott & Sons but was purchased by ITT, an international business conglomerate. Later, Scotts became an independent company via a leveraged buyout, and merged with Miracle-Gro, a gardening company, to create the Scotts Miracle-Gro Company. The company went public in 1992 and trades under the ticker symbol SMG.
SMG plays in the agrichemical industry which encompasses the various chemical products used in the agriculture industry. Agrichemicals are chemical products used in agriculture such as insecticides, herbicides, fungicides, and nematicides. Since the green revolution began in the 1930s, agricultural chemistry has become a mainstay in global agriculture. In 2019, the agrichemical market worldwide was worth approximately $234.2 billion and is expected to increase to more than $300 billion in 2025.
Another sector SMG plays is in the cannabis industry. You may be surprised to learn this but they contribute to the sector via The Hawthorne Gardening Company. Cannabis is grown via hydroponics, a system of growing plants without soil, and the SMG-owned Hawthorne Gardening Company is the biggest supplier of hydroponic supplies. Hawthorne has even entered an agreement to acquire HydroLogic Purification Systems, a provider of water filtration systems for cannabis growers. This deal is expected to bring in $20 million in annual sales.
Competitors
Primary competitors include Spectrum Brands Holdings (SPB), a manufacturer of lawn and garden care products under the Spectracide and Garden Safe brand names. As of 2018, Spectrum Brands is ranked 422 on the Fortune 500 rankings of the largest United States corporations by total revenue.
Central Garden & Pet Company (CENT) is another manufacturer and distributor of lawn and garden products. It offers lawn and garden supplies products that include grass seed, fertilizers, live plants as well as other herbicides, insecticides, and pesticide products.
Nutrien (NTR) is a Canadian fertilizer company that is the largest producer of potash and the third-largest producer of nitrogen fertilizer in the world. They have over 1,500 retail stores and more than 23,100 employees.
The company also faces competition from smaller regional competitors who operate in many of the areas where they compete.
Key Advantages
SMG is an ESG (environmental, social, and governance) stock. ESG is increasingly becoming more important to institutional investors and big money managers. Millennial investors are also very interested in ESG stocks; they have invested $51B in ESG stocks in 2020 - compared to less than $5B five years ago. Many companies are set to benefit from the growing interest in ESG stocks and SMG is one of them.
COVID 19 has forced people to use their houses more and differently. According to the latest earnings report from SMG, demand was strong in all categories of indoor growing products, as consumers stayed at home and tended gardens and indoor plants. U.S. Google searches for home improvement work went up over 50% in 2020. Gardening projects are the type of home improvement up the most, with SMG primmed to take advantage of this shift.
SMG owns the leading manufacturer of hydroponic products and this will help the company gain huge exposure to the growing marijuana industry, as well as indoor farming in general which both have the potential to boom over the next several decades. SMG’s 2020 Q1 earnings showed that the U.S. consumer segment sales popped 8%, while Hawthorne revenue jumped 41%. These numbers show the potential gains SMG can get from the Hawthorne Gardening Company. Also, the company’s exposure to the cannabis industry will offer investors exposure to the high growth potential of cannabis and also pay dividends to shareholders.
Key Risks
One issue that may hinder the company is its plan to increase prices to offset increases in the costs of commodities. Consumers may react negatively to those price increases, which could raise questions about how it will fare in its fiscal 2022.
Bottom line
Scotts Miracle-Gro is an agrichemical manufacturing company that is set to take advantage of the budding cannabis market via its hydroponics business and the recent boom in home improvement projects. This stock is an interesting combination for people who are looking for exposure to the cannabis market and to the more traditional manufacturing sector as well.
That’s it from us today.
See you next week.