Ticker Reports for July 23rd
ScottsMiracle-Gro Stock Blooms After Investor Day Optimism
Lawn and garden products manufacturer ScottsMiracle-Gro Co. (NYSE: SMG) stock surged on its Investor Day update ahead of fiscal Q3 2024 earnings release. The company reaffirmed its full-year 2024 outlook and further added that it expects 3% YoY growth in its U.S. consumer segment from 2025 to 2027. Its products are widely used for agriculture by consumers of plants and lawn care. There is also a growing population of cannabis growers using their products. They are a benefactor from cannabis legalization and decriminalization, which includes 46 states to date.
Scotts Miracle-Gro operates in the basic materials sector, competing with fertilizer and agricultural chemicals companies like Intrepid Potash Inc. (NYSE: IPI), The Mosaic Co. (NYSE: MOS), and CF Industries Holdings Inc. (CF).
ScottsMiracle-Gro Portfolio of Brands
While ScottsMiracle-Gro may sound like a single product line, it actually owns a portfolio of brands and products. Here are some of its core lawn and garden brands.
Scotts is the flagship brand of lawn care products, including seeds, weed control, and fertilizers. Miracle-Gro is designed to help gardeners achieve vibrant and lush blooms through its plant foods and soil improvement products. Ortho and Tomcat brands specialize in lawn and garden disease and pest control products that help eliminate diseases, weeds, and insects.
Its hydroponic and indoor gardening brands include General Hydroponics, which sells indoor gardening and greenhouse equipment and nutrients, which is also popular with cannabis growers. AeroGarden offers indoor gardening systems, enabling users to grow plants without soil.
Roundup Health Concerns and Cancer Lawsuits
Roundup sells herbicides that have been under much scrutiny from lawsuits alleging that they cause health issues and cancer. Monsanto is the actual owner of Roundup, but ScottsMiracle-Gro has been the exclusive marketer and distributor. Monsanto was acquired by Bayer Aktiengesellschaft (OTCMKTS: BAYRY).
SMG Attempts to Breakout of a Descending Channel Ahead of Earnings Release
The daily candlestick chart on SMG depicts a descending price channel comprised of lower highs and lower lows. The Investor Day guidance helped to bounce SMG through the upper trendline resistance, causing it to peak at $70.00 before retesting. The reversion will need to stay above the upper trendline to successfully breakout of the channel. The daily relative strength index (RSI) stalled around the 55-band, which could indicate a potential divergence. Pullback support levels are at $64.57, $61.51, $58.43, and $56.05.
Looking Back at Q2 2024
In its fiscal Q2 2025 earnings report, ScottsMiracle-Gro reported EPS of $3.69, beating consensus estimates by 25 cents. Revenues fell 0.4% YoY to $1.53 billion, beating $1.5 billion consensus estimates. The company reaffirmed its previously forecast non-GAAP fiscal 2024 guidance. The company's primary goal is to restore a strong balance sheet with significant improvements in leverage and working capital. The company plans to generate an adjusted EBITDA of $575 million and a free cash flow of $560 million.
Recapping Its 2024 Investor Day Outlook
Fast forward to July 16, 2024, the company provided updates at its Investor Day. ScottsMiracle-Gro will pursue growth opportunities at emerging touchpoints, including omnichannel retail and Hispanic consumers. Further investments will be made in technology and infrastructure for predictive analytics and optimized service models to fuel margin growth. The cumulative effect will be a $150 million cost savings in the U.S. Consumer business supply chain cost savings over the following three years and a projected return to adjusted gross margin rates above 30%.
The company will continue to transform its Hawthorne subsidiary from a distributor to a branded solution provider focusing on proprietary signature brands. These brands are expected to contribute to adjusted earnings beginning in fiscal 2025 with single-digit sales growth weighted towards higher-margin consumable versus durable products.
ScottsMiracle-Gro Provides Midterm Targets
The company expects to average 3% net sales growth in the U.S. Consumer business through fiscal 2025 to 2027. Non-GAAP adjusted gross margin is expected to return above 30%. Delivering these mid-range targets will achieve a total non-GAAP adjusted operating margin above 15% and adjusted EBITDA above $600 million.
ScottsMiracle-Gro Reaffirms Fiscal 2024 Outlook
ScottsMiracle-Gro reaffirmed that it is on track to achieve its updated full-year guidance provided in June, which was $1 billion in free cash flow over 2 years, delivering the remainder of $560 million in fiscal full year 2024. It expects to pay down an additional $350 million in debt and drive full-year gross margin improvement of at least 250 bps. The company is encouraged by consumer engagement with unit point-of-sale (POS) through June up 10% YoY in the wake of challenging weather and macroeconomic conditions.
ScottsMiracle-Gro analyst ratings and price targets are at MarketBeat. The consensus analyst price target of $71.67 implies a 6.66% upside. Out of six analyst ratings, two have a Buy, and two have a Hold rating.
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Leading Beverage Company's Stock Bubbles Higher: Rally Ahead
Coca-Cola Company (NYSE: KO) struggled with FX conversion in Q2 but navigated difficult times with aplomb, setting its stock up to move higher and set a new all-time high. The critical details are that price, mix, and timing of sales offset the weaknesses, paving the way for a guidance increase. The guidance expects another 100 basis points of top-line growth and a widening margin, which should be enough to keep the analysts happy.
As it is, MarketBeat tracks 11 analysts with current ratings, and they are leading this market to a new high. Analysts' activity in the two months before the Q2 release includes numerous price target increases and an initiated coverage, leading this market to the high end of the expected range or a gain of at least 5%. Because the 5% gain puts the stock at a new all-time high, it is the likely beginning of a rally that could last well into next year.
Coca-Cola Has Industry-Leading Quarter: Raises Guidance
Coca-Cola issued some mixed results, but the underlying details are strong. The company’s $12.4 billion net revenue is up 3.3%, leading its largest competitor, PepsiCo (NASDAQ: PEP), by hundreds of basis points despite the impact of FX conversion. The top-line outpaced the consensus by 550 basis points on a 2% increase in global unit case volume.
Organically, the company grew by 15%, with the reported top and bottom-line results impacted by FX translation. Organic growth drivers are a 9% increase in price/mix compounded by a 6% increase in concentrate sales. Regionally, all segments produced organic growth, but currency headwinds sapped strength from APAC, Global Ventures, and Bottling Investments, which produced the weakest results, down 25% YoY. Latin America, the strongest segment, grew by 20%.
The margin news is good. The company’s pricing efforts in inflation-hit economies are helping to sustain a solid margin. While GAAP results are down YoY, the adjusted operating margin is up 80 bps, producing leverage growth on the bottom line. The adjusted EPS of $0.84 is up 7% compared to last year and outpaced consensus by 370 bps, leading the company to raise guidance. Coca-Cola improved its guidance for revenue and earnings, now calling for 9% to 10% organic revenue growth and 5% to 6% EPS growth or about $2.84 compared to the $2.82 consensus forecast.
The Coca-Cola Company Can Sustain Its Capital Return Growth
Among the salient details from the Coca-Cola report are that free cash flow remains solid, the balance sheet is healthy, and capital returns are safe. Capital returns include the dividend and share repurchases, which reduced the count by 1% average for the quarter. The dividend is losing some appeal with share prices rising, but the yield is still more than 100% better than the average S&P 500 company, with shares equally valued near 22x, and the distribution is growing. Investors may not expect robust double-digit increases, but the outlook for earnings growth and share repurchases suggests that a mid-to-high single-digit CAGR is possible and sustainable. The last increase was worth 6.5% to investors, and the subsequent increase is due March 2025.
Coca-Cola Bubbles to Fresh Highs
The Q2 report catalyzed the KO market to move higher. Early premarket activity has the stock up nearly 2% and trading at what would be a fresh, two-year closing high if held until the end of the session. Assuming the market follows through with this indication, shares of KO could retest or exceed the all-time high within a matter of weeks. In this scenario, a move to a new high would break the market out of an almost three-year trading range and open the door to a sustained rally.
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Can This Meme Stock Stage One Last Rally?
Investors should now be familiar with the story behind so-called “meme stocks.” These are companies considered not that great by hedge funds and savvy investors who bought into the technology sector, so they naturally carry large short interest due to the number of short sellers who take on their bearish views. What ends up happening is a management stunt to send the stock rallying and cause what’s known as a short squeeze, otherwise known as an astronomic rally.
The latest example of this sequence is the GameStop Corp. (NYSE: GME) saga, where the stock more than tripled in price due to a Twitter (now X) user posting his bullish thesis on the stock, and that was enough to trigger a wave of retail investor buying to spark a short squeeze. Following suit, today, investors face another halt in trading due to a sudden upside move in shares of AMC Entertainment Holdings Inc. (NYSE: AMC), as a new announcement from management sent the stock rallying by more than 10.9%.
As the stock was halted until investors may want to check in to see what is happening behind the scenes to make a better-educated guess about the stock’s direction. It all starts with what the announcement implies: a debt restructuring that might help the company buy some time and get its house in order.
The Deal Terms Boosting AMC Stock's Rally
Some investors may recall a similar strategy used by Carvana Co. (NYSE: CVNA) management when it swapped some of its long-term bond obligations for convertible bonds. This allowed creditors to unburden the company, let its operations thrive, and enjoy better upside through equity ownership.
AMC management took a page out of the Carvana playbook recently, as SEC filings show the transaction deal specifies that up to $2.45 billion in debt maturities will be extended from their current maturity of 2026 to 2029, allowing for more breathing room for the stock to maneuver past the nearing maturities calling for available cash on hand to repay.
In addition, the company has invested up to $464 million in convertible bonds. These bonds not only reduce the company's debt burden but also allow creditors to convert their debt into shares and enjoy the upside (if any) of the company's future.
Once Carvana issued the same strategy behind convertible bonds, markets were accepting enough to stampede into the stock and bring it to a nearly six-fold rally in the 12 months that followed. Far from assuming that history will repeat itself, investors can look deeper into the company's financials to either justify or dismantle the prospects of a continued rally.
AMC Stock: Financial Drivers Investors Can't Ignore
When investors examine the company's latest quarterly earnings, slightly flat annual revenues are the most minor threat to this potentially short-lived rally. AMC reported yet another quarter of net losses, with $163.5 million lost this quarter, compared to a net loss of $235.5 million a year prior.
But it doesn't stop there. Savvy investors will ask about cash flows since net income is easily manipulated through "creative accounting." Operating cash flows were nonexistent, as AMC reported a net outflow of $188.3 million this quarter, compared to $189.9 million a year prior.
Investors can land on free cash flow measures by taking out the needed capital expenditures to keep the business running and movies showing. This quarter's negative free cash flow of $238.8 million, compared to $237.3 million a year prior, shows worsening conditions in the underlying business operations.https://www.marketbeat.com/originals/amc-entertainment-time-to-take-step-back-into-this-meme-stock/
The question is, how does AMC keep running if it doesn't make any money? The answer is dilution since nobody is readily looking to buy its debt. Last time there was a meme stock run, AMC management took advantage of the high stock price to issue expensive stock into the market and fund its ongoing operations.
While buying up to three more years in the timeline that AMC faces before it needs to pay up for its bonds can be a good thing, investors who now have the option to convert their bonds into stock need to have a very good reason for doing so. Without any earnings or free cash flow to show, converting might not even be a consideration for most.
Even with the new restructuring, Wall Street analysts know better than to expect a short squeeze or a similar run to Carvana stock when it applied the same strategy, as that company at least had a plan – and path – to achieve free cash flow.
Citigroup analysts still see a price target of $3.2 for AMC stock, calling for an up to 40% downside from where the stock has rallied today. Even more recent analyst ratings: As of July 2024, Macquarie analysts see only a $4 valuation on AMC stock, still expecting a 24.5% downside from today's prices.
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