JPMorgan recently downgraded Scotts Miracle-Gro (SMG) to Neutral from Overweight, citing the increased costs that the company will have to pay due to the war against Iran. But if the war ends relatively soon, the higher costs associated with it are likely to dissipate over the longer term. Further, SMG offers a rather high dividend yield, and its profits are expected to increase significantly in the coming years, which serve as two potential, positive catalysts. Finally, the company’s valuation is fairly attractive.
In light of these points, I believe that patient, conservative investors and value investors with long-time horizons should buy the shares.
Scotts provides products that facilitate the growth and health of lawns and gardens.
In its December quarter, the company’s sales fell 3% versus the same period a year earlier to $354.4 million, while its EBITDA, excluding certain items, climbed to $3 million from $900,000.
The stock has a forward price-earnings ratio of 14.58 times, a market capitalization of $3.5 billion, and a dividend yield of 4.25%.
The bank predicted that SMG’s raw-material costs would rise significantly during its current fiscal year due to the war, with the amount that it shells out for urea, diesel, and polyethylene all climbing meaningfully. As a result, JPMorgan cut its FY27 earnings per share estimate for the company to $4.35 from $4.65, and it reduced its price target on the name to $67 from $70.
On March 30, President Donald Trump reported that Iran had accepted “most of” the United States’ 15-point peace plan. While an Iranian spokesperson countered that the U.S. initiative includes “largely excessive, unrealistic, and unreasonable demands,” the spokesperson does not appear to have directly said that Trump’s statement was inaccurate.
Further, both the U.S. and Iran have strong motivations to end the war relatively soon. High oil prices caused by the war are hurting America’s economy. And Iran’s president has warned that its economy could “collapse within weeks.”, Further, many Iranian officials are being killed, and its defense-industrial base is being crippled by the U.S. and Israel.
