Although analysts generally see only slightly higher revenue in FY 2009 for SMG, a rebound is expected in F2010, so financial institutions have been incrementally adding to their SMG positions. This year, European sales will offset weakness in North America. Further, ample market share gains are possible on both continents.
Also, gross margins should increase on lower costs for fertilizer and fuel, and a better product mix also is encouraging. The First Call FY 2009/FY 2010 EPS estimates for SMG are $2.36 to $2.74.
Scotts is a 'get-ahead-of-pack' play, but certainly not one without risks. If the U.S. housing sector's recovery does not start by early 2010, the company's shares will receive a hair-cut. Unfavorable weather conditions in the spring also are capable of deflecting the shares' upward trajectory. With that as a backdrop, the risk/return is favorable for this growth play, pun intended.
Stock Analysis: Scotts Miracle-Gro is a moderate-risk stock. Consider buying a 25% position in SMG now; then buy another 25% in three months, if U.S. and European economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your SMG position in the first half of 2009. Sell/Stop Loss if you were to buy shares in this company: $17.
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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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