Failing to flourish in the first five months of 2022, shares of Scotts Miracle-Gro (SMG 0.71%), the lawn care and pest control purveyor, had fallen more than 41%. And the downward trend didn't stop in June. According to data from S&P Global Market Intelligence, Scotts Miracle-Gro's stock plunged 16.5% last month, nearly doubling the S&P 500's decline of 8.4%.
In addition to the company's downward revision of its 2022 guidance, a flood of bearish commentary on the stock from Wall Street drowned investors' hopes for the stock.
On June 8, management revealed its new -- more dour -- expectations for 2022, which included lower expectations on both the top and bottom lines. Initially, the company had forecast overall sales growth of flat to 3% 2022 compared to 2021. While management expected U.S. sales to be flat or decline 3%, it believed that Hawthorne, the cannabis-related subsidiary, would drive year-over-year growth about 8% to 12%. With regard to profitability, management had originally forecast 2022 adjusted earnings per share of $8.50 to $8.90.
Growth, however, doesn't seem to be in the cards for 2022. Management now estimates U.S. sales will shrink 4% to 6%, and Hawthorne sales will plummet 40% to 45% due to an oversupply of cannabis in the market. Furthermore, management slashed adjusted EPS guidance, estimating that the company will now report adjusted EPS of $4.50 to $5.
Shortly after the company issued its revised forecast, analysts responded with their own pessimism:
- Truist cut its price target to $85 from $185, downgrading the stock to hold from buy.
- J.P. Morgan slashed its price target to $95 from $130, downgrading the stock to neutral from overweight.
- Raymond James trimmed its price target to $110 from $125.
- Stifel lowered its price target to $93 from $116, maintaining a hold rating.
Especially notable action came from Chris Carey, an analyst with Wells Fargo, where the bearish fervor grew like a weed last month. On June 2 (prior to management's announcement of lowered guidance), Carey reduced the price target on Scotts Miracle-Gro to $130 from $145. Carey slashed the price target again on June 9 and June 22, when he reduced the price targets to $115 and $85, respectively.
For an industry stalwart like Scotts Miracle-Gro, the sell-off last month seems a little overblown. While 2022 may not be as lush as management originally foresaw, this leader in lawn and garden supplies should hardly be dismissed altogether. Management largely attributes the predicted lower sales in 2022 to an oversupply of inventory -- a challenge for sure, but not an irreparable harm to the company's long-term prospects.