Scotts Miracle Gro Co Stock Downgraded (SMG)

NEW YORK (TheStreet) -- Scotts Miracle Gro (NYSE:SMG) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its revenue growth and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and generally higher debt management risk.

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Highlights from the ratings report include:

• SMG's revenue growth has slightly outpaced the industry average of 2.1%. Since the same quarter one year prior, revenues slightly increased by 0.3%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
• 36.10% is the gross profit margin for SCOTTS MIRACLE-GRO CO which we consider to be strong. Regardless of SMG's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 8.80% trails the industry average.
• SCOTTS MIRACLE-GRO CO's earnings per share declined by 9.5% in the most recent quarter compared to the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, SCOTTS MIRACLE-GRO CO reported lower earnings of $1.73 versus $2.93 in the prior year. This year, the market expects an improvement in earnings ($2.45 versus $1.73).
• Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. In comparison to the other companies in the Chemicals industry and the overall market, SCOTTS MIRACLE-GRO CO's return on equity is significantly below that of the industry average and is below that of the S&P 500.
• In its most recent trading session, SMG has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. It was down over the last twelve months; and it could be down again in the next twelve. Naturally, a bull or bear market could sway the movement of this stock.

The Scotts Miracle-Gro Company engages in manufacturing, marketing, and selling lawn and garden care products worldwide. The company operates through two segments, Global Consumer and Scotts LawnService. The company has a P/E ratio of 15.8, below the average chemicals industry P/E ratio of 23.3 and below the S&P 500 P/E ratio of 17.7. Scotts Miracle Gro has a market cap of $2.52 billion and is part of the basic materials sector and chemicals industry. Shares are down 11.6% year to date as of the close of trading on Friday.

You can view the full Scotts Miracle Gro Ratings Report or get investment ideas from our investment research center.

-- Written by a member of TheStreet Ratings Staff

TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.

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