The Scotts Miracle-Gro Company (SMG) manufactures, markets and sells branded consumer lawn and garden care products worldwide. The company operates through three segments—U.S. Consumer, Hawthorne and Other. In addition, it offers hydroponic products and lighting components that help in growing plants and vegetables indoors, using little or no soil. It serves home and garden centers, nurseries, large hardware chains, e-commerce platforms, and food and drug stores.
The Mosaic Company (MOS) produces and markets concentrated phosphate and potash crop nutrients in North America and internationally. The company operates through three segments—Phosphates, Potash, and Mosaic Fertilizantes. In addition, it provides nitrogen-based crop nutrients and animal feed ingredients, and other ancillary services. MOS sells its products to wholesale distributors, retail chains, farmers, cooperatives, independent retailers, and national accounts.
The huge rise in food consumption during the COVID-19 pandemic has benefited the fertilizers industry, resulting in record net sales last year. However, the high demand for fertilizers to get good crop yields had caused a shortage in the supply of potash and phosphate, two major components used in producing fertilizers, leading to a rise in their prices.
MOS has gained marginally over the past month, while SMG lost 1.6%. In terms of the past year’s performance, MOS is a clear winner with 206.5% returns versus SMG’s 96.4%. But which of these two stocks is a better pick now? Let’s find out.
Latest Movements
To reduce critical environmental issues facing Long Island, on March 23, SMG introduced Turf Builder Long Island Lawn Food, a new lawn fertilizer formulated specifically for the area’s soil and climate needs, thus improving sustainability while protecting local water quality.
On March 11, SMG priced $500 million of 4% senior notes. It intends to use the proceeds to reduce borrowings under its revolving credit facility. The company wants to reduce its exposure to floating interest rates. In January, Hawthorne Canada Ltd., an SMG subsidiary, and The Flowr Corporation (FLWR) completed building America’s first research and development center dedicated to advancing cannabis cultivation techniques and systems. Both companies hope to lead in cannabis cultivation in future.
As a part of Earth Day celebrations on April 22, MOS announced its progress on four focus areas that helped it achieve bold Environmental, Social, and Governance (ESG) performance targets in 2020. The company has progressed in initiatives implemented in its manufacturing facilities and mines. It is seeking to reduce it water usage and reduce gas emissions each by 20% per tonne of product by 2025.
MOS and AgBiome, a leader in discovering and developing innovative agricultural products from diverse microbial communities, collaborated on March 23 to discover, develop and launch novel biological approaches that enhance soil fertility. Through this collaboration, MOS hopes to use AgBiome’s industry-leading expertise in soil health and product development, as well as its global distribution and sales network.
On March 9, MOS and Sound Agriculture collaborated to create a revolutionary nutrient efficiency product that will boost yields across major row crops and improve soil health. MOS hopes to use Sound’s technology to enhance the efficiency and production of its product portfolios.
Recent Financial Results
SMG is scheduled to release its fiscal 2021 second quarter results on May 5, before the market opens. SMG's net sales for the fiscal 2021 first quarter, ended January 2, 2021, increased 104.6% year-over-year to $748.60 million. Its net sales from its U.S. Consumer segment have increased 146.6% year-over-year to $408.20 million. The company’s non-GAAP gross profit came in at $199.80 million, up 266.6% from the prior-year period. Its non-GAAP income from operations was $43.80 million for the quarter, compared to a loss of $64.80 million in the first quarter of 2019. However, SMG’s non-GAAP net income was t $22.20 million for the quarter, compared to a net loss of $62.40 in the year-ago period. And its non-GAAP EPS was $0.39 for the quarter, compared to a loss per share of $1.12 in the prior-year period.
For three months ended January 2, 2021, SMG’s total assets have increased 15.8% year-over-year to $4 billion. It had cash and cash equivalents of $21.50 million.
MOS is scheduled to release its fiscal year 2021 first quarter results on May 3, after the market closes. For the fourth quarter ended December 31, 2020, MOS’ net sales rose 18.4% year-over-year to $1.46 billion. Its potash segment sold 2.7 million tonnes in the quarter, up 80% year-over-year. Its gross profit has increased 409.8% year-over-year to $411.40 million. And its operating earnings came in at $294.80 million for the quarter, compared to an operating loss of $1.19 million in the prior-year period. MOS’ net earnings were $827.90 million for the quarter, compared to net loss of $921 million in the fourth quarter of 2019. And its adjusted earnings per share came in at $0.57 for the quarter, compared to a loss of $0.29 in the prior-year period.
As of December 31, 2020, MOS’ total assets increased 2.5% year-over-year to $19.79 billion. The company had cash and cash equivalents of $594.40 million.
Past and Expected Financial Performance
SMG’s revenue and total assets grew at CAGRs of 19.3% and 11.2%, respectively, over the past three years. The CAGR of the company’s levered free cash flow has been 2.9% over the past three years.
Analysts expect SMG’s revenue to decline by 3.6% in the current quarter (ending June 30, 2021), but rise by 10.6% in its fiscal year 2021 and 0.4% next year. Its EPS is expected to decline by 7.8% in the current quarter, 22.3% in the current year, and 1.6% next year. SMG had surpassed the Street's EPS estimates in three of the trailing four quarters. CMG’s EPS is expected to grow at a rate of 10.1% per annum over the next five years.
In comparison, MOS’ revenue and total assets grew at CAGRs of 5.4% and 2%, respectively, over the past three years. However, the CAGR of the company’s free cash flow has been 7.1% over the past three years.
Analysts expect MOS’ revenue to increase 36.7% in the current quarter (ending June 30, 2021), 19.5% in the current fiscal 2021, but decline by 2.1% next year. However, its EPS is expected to increase 763.6% in the current quarter, 205.9% in the current year, but decline by 10% next year. MOS had surpassed the Street’s EPS estimates in each of the trailing four quarters. Its EPS is expected to grow at a rate of 7% per annum over the next five years.
Profitability
MOS' trailing-12-month revenue is more than 1.9 times SMG’s. MOS is also more profitable, with $1.58 billion cash from operations versus SMG’s $455.50 million.
Valuation
In terms of forward non-GAAP P/E, SMG is currently trading at 25.87x, 96% higher than MOS, which is currently trading at 13.20x. Also, MOS’ forward EV/EBITDA of 6.66x is significantly lower than SMG’s 17.42x. In terms of forward EV/sales, MOS’ 1.60x is 105.6% higher than SMG’s 3.29x.
Thus, MOS looks more affordable here.
POWR Ratings
While SMG has an overall C rating, which translates to Neutral in our proprietary POWR Ratings system, MOS has an overall B rating, which equates to a Buy.
Both SMG and MOS have a Sentiment grade of B, which is consistent with analysts’ expectations that their revenue and EPS will improve.
Among the 64 stocks in the A-rated Home Improvement & Goods industry, SMG is ranked #40.
MOS is ranked #11 of 30 stocks in the Agriculture industry.
Beyond what we’ve stated above, our POWR Ratings system has also rated both SMG and MOS for Momentum, Stability, and Quality. Get all SMG ratings here. Also, click here to see the additional POWR Ratings for MOS.
The Winner
Both SMG and MOS are well-known fertilizer companies. They have been innovative in producing fertilizers to tackle critical environmental issues to fulfill their commitment to sustainability. The shortage of potash and phosphate should be beneficial for both domestic manufacturers. However, we think MOS seems to be a better buy based on its higher earnings growth potential and lower valuation.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Home Improvement & Goods industry, and here for those in the Agriculture industry.
SMG shares were unchanged in after-hours trading Friday. Year-to-date, SMG has gained 17.24%, versus a 11.83% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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