UPDATE: Wells Fargo Downgrades Scotts Miracle-Gro (SMG) to Equal Weight, 'No Relief for This Story Until FY23'

June 22, 2022 5:23 AM EDT
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Price: $55.75 +0.94%

Rating Summary:
    6 Buy, 12 Hold, 0 Sell

Rating Trend: Down Down

Today's Overall Ratings:
    Up: 2 | Down: 23 | New: 24
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(Updated - June 22, 2022 7:30 AM EDT)

Wells Fargo analyst Chris Carey downgraded Scotts Miracle-Gro (NYSE: SMG) from Overweight to Equal Weight with a price target of $85.00 (from $115.00).

The analyst comments "3 key elements of the story...#1 and #2 don't improve until next year...increasing focus on #3...and that's not good for SMG in this tape. (1) lawn/garden recovery, (2) Hawthorne recovery, (3) levered balance sheet. #1 can't be proven until the FY23 season, with the FY22 season already starting to wind down as retailers clear inventory for the season ahead; and, the narrative around #2 (Hawthorne) became worse for us today, with our inaugural Cannabis Cultivator Survey published in conjunction with this note (an exhaustive effort reaching out to the US cannabis cultivator complex) showing an industry under significant duress, with little visibility on a turn. This means the focus on SMG likely becomes more pronounced on #3, a levered balance sheet, which we expect to be elevated for the next 4 quarters, ending Sep FY-end at 5.5x but breaching 6.0x in Mar 2023 during the seasonal debt build, before ebbing thereafter. This 4 quarter stretch seems critical for the economy (slowing) and stock market (volatile), where any names with leverage likely see little support in our view."

For an analyst ratings summary and ratings history on Scotts Miracle-Gro click here. For more ratings news on Scotts Miracle-Gro click here.

Shares of Scotts Miracle-Gro closed at $76.34 yesterday.

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