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Scotts Miracle-Grow (SMG) Looks to Weed for Growth

Ryan Allway

August 4th, 2016

News, Top News

Scotts Miracle-Grow (NYSE: SMG) recently hit record highs after JP Morgan increased its price target from $70 to $85 per share. Analyst Jeffrey J. Zekauskas believes that the company is using acquisitions to build up its hydroponics business, which is well-positioned to tap into the rapidly growing marijuana industry.

According to the research note:

Scotts has a premium product line and a domestic market share that approximates 50%. We believe sales growth has been subpar for a number of years because of adverse weather patterns. On this basis, we believe that Scotts is a reasonably valued longer-term investment. Scotts is now putting together a new business through acquisitions in the hydroponics market. Hydroponics revenues are small currently, about $160m in 2016 or about 6% of the total and perhaps $250m-$300m by the end of 2017 or 10% of the total as the business is built by acquisitions and growth. The hydroponics market taps into marijuana demand and the company now has a growth option that we think an investor is able to capture for about the price of the traditional business.

Research and Markets projects that the hydroponics market will grow from $18.8 billion in 2014 to $27.29 billion in 2020, representing a CAGR of 6.39%. While the majority of demand comes from tomatoes, lettuce and similar crops, marijuana represents one of the fastest growing segments of the market. A growing number of analysts believe that the medical and recreational marijuana market could hit $35 billion in size by 2020.

“I would say they can’t make things fast enough,” said Scotts CEO Jim Hagedorn in comments to analysts this week. Lighting products are flying off the shelf as the company explores adding other products to the mix. The company plans on acquiring an Arizona-based hydroponic nutrient and supplement company called Botanicare and may add mid-range lighting products and other products to its Hawthorne Gardening Co. division.

Currently, the division only accounts for about 8% of the company’s total revenue, but these figures could expand over time if analysts are correct in their assessments.

This article was published by CFN Enterprises Inc. (OTCQB: CNFN), owner and operator of CFN Media, the industry’s leading agency and digital financial media network dedicated to the burgeoning CBD and legal cannabis industries. Call +1 (833) 420-CNFN for more information.

About Ryan Allway

Mr. Allway has over a decade of experience in the financial markets as both a private investor and financial journalist. He has been actively involved in the cannabis industry since its inception, covering public and private companies.

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