Estimating The Intrinsic Value Of The Scotts Miracle-Gro Company (NYSE:SMG)

Simply Wall St.11-08

Key Insights The projected fair value for Scotts Miracle-Gro is US$74.61 based on 2 Stage Free Cash Flow to Equity With US$72.99 share price, Scotts Miracle-Gro appears to be trading close to its ...

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overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nEstimating The Intrinsic Value Of The Scotts Miracle-Gro Company (NYSE:SMG)\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-11-08 18:37 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://finance.yahoo.com/news/estimating-intrinsic-value-scotts-miracle-103745530.html><strong>Simply Wall St.</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Key Insights\n\n The projected fair value for Scotts Miracle-Gro is US$74.61 based on 2 Stage Free Cash Flow to Equity \n With US$72.99 share price, Scotts Miracle-Gro appears to be trading close to its ...</p>\n\n<a href=\"https://finance.yahoo.com/news/estimating-intrinsic-value-scotts-miracle-103745530.html\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4211","symbol_name":"区域性银行","start_time":0,"source_url":"https://finance.yahoo.com/news/estimating-intrinsic-value-scotts-miracle-103745530.html","article_id":"2481127747","we_media_id":null,"thumbnails":["https://s.yimg.com/uu/api/res/1.2/7derraoEURMov0.kYFmzQw--~B/aD00MzI7dz0xMTk0O2FwcGlkPXl0YWNoeW9u/https://media.zenfs.com/en/simply_wall_st__316/a3ab99500bb842820119e0d737ca7bfe"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2481127747","pubTimestamp":1731062265,"sourceInfo":{"source_id":"yahoofinance","name":"雅虎金融"},"weMediaInfo":null,"summary":"The projected fair value for Scotts Miracle-Gro is US$74.61 based on 2 Stage Free Cash Flow to Equity. With US$72.99 share price, Scotts Miracle-Gro appears to be trading close to its estimated fair value. Analyst price target for SMG is US$82.14, which is 10% above our fair value estimate. Does the November share price for The Scotts Miracle-Gro Company  reflect what it's really worth?Today, we will estimate the stock's intrinsic value by taking the forecast future cash flows of the company and discounting them back to today's value. We will use the Discounted Cash Flow  model on this occasion. Believe it or not, it's not too difficult to follow, as you'll see from our example!We would caution that there are many ways of valuing a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios. If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model.Generally we assume that a dollar today i","collect":0,"end_time":0,"defaultTopTitle":"yahoo.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4211":"区域性银行","BK4093":"化肥与农用药剂","SMG":"Scotts Miracle-Gro Company","FCF":"第一联邦金融","DCF":"Dreyfus Alcentra Global Credit Income 2024 Target Term Fund, Inc","NYSE":"纽交所","BK4100":"有线和卫星","TV":"墨西哥电视"},"translate_title":"估算Scotts Miracle-Gro公司（纽约证券交易所股票代码：SMG）的内在价值","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"DCF":1,"FCF":1,"NYSE":1,"SMG":1,"TV":1},"content_text":"Key Insights\n\n The projected fair value for Scotts Miracle-Gro is US$74.61 based on 2 Stage Free Cash Flow to Equity \n With US$72.99 share price, Scotts Miracle-Gro appears to be trading close to its estimated fair value \n  Analyst price target for SMG is US$82.14, which is 10% above our fair value estimate \n\n Does the November share price for The Scotts Miracle-Gro Company (NYSE:SMG) reflect what it's really worth? Today, we will estimate the stock's intrinsic value by taking the forecast future cash flows of the company and discounting them back to today's value. We will use the Discounted Cash Flow (DCF) model on this occasion. Believe it or not, it's not too difficult to follow, as you'll see from our example! \n We would caution that there are many ways of valuing a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios. If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model. \n View our latest analysis for Scotts Miracle-Gro \n What's The Estimated Valuation? \n We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company's cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase. In the first stage we need to estimate the cash flows to the business over the next ten years. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years. \n Generally we assume that a dollar today is more valuable than a dollar in the future, so we discount the value of these future cash flows to their estimated value in today's dollars: \n 10-year free cash flow (FCF) estimate \n\n\n\n\n2025\n2026\n2027\n2028\n2029\n2030\n2031\n2032\n2033\n2034\n\n\n Levered FCF ($, Millions) \nUS$215.9m\nUS$320.4m\nUS$281.8m\nUS$260.2m\nUS$248.4m\nUS$242.4m\nUS$240.2m\nUS$240.6m\nUS$242.7m\nUS$246.1m\n\n\nGrowth Rate Estimate Source\nAnalyst x2\nAnalyst x2\nEst @ -12.04%\nEst @ -7.64%\nEst @ -4.57%\nEst @ -2.41%\nEst @ -0.90%\nEst @ 0.16%\nEst @ 0.89%\nEst @ 1.41%\n\n\n Present Value ($, Millions) Discounted @ 7.5% \nUS$201\nUS$277\nUS$227\nUS$195\nUS$173\nUS$157\nUS$144\nUS$135\nUS$126\nUS$119\n\n\n\n(\"Est\" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = US$1.8b\n We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period. The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 2.6%. We discount the terminal cash flows to today's value at a cost of equity of 7.5%. \nTerminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = US$246m× (1 + 2.6%) ÷ (7.5%– 2.6%) = US$5.1b\nPresent Value of Terminal Value (PVTV)= TV / (1 + r)10= US$5.1b÷ ( 1 + 7.5%)10= US$2.5b\n The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is US$4.2b. To get the intrinsic value per share, we divide this by the total number of shares outstanding. Compared to the current share price of US$73.0, the company appears about fair value at a 2.2% discount to where the stock price trades currently. Valuations are imprecise instruments though, rather like a telescope - move a few degrees and end up in a different galaxy. Do keep this in mind. \n\n\n\n  NYSE:SMG Discounted Cash Flow November 8th 2024\n \n\n The Assumptions \n The calculation above is very dependent on two assumptions. The first is the discount rate and the other is the cash flows. Part of investing is coming up with your own evaluation of a company's future performance, so try the calculation yourself and check your own assumptions. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at Scotts Miracle-Gro as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 7.5%, which is based on a levered beta of 1.193. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business. \nSWOT Analysis for Scotts Miracle-Gro\n\n\nStrength\n\nDebt is well covered by cash flow.\n\n\nBalance sheet summary for SMG.\n\n\n\nWeakness\n\nInterest payments on debt are not well covered.\n\n\nDividend is low compared to the top 25% of dividend payers in the Chemicals market.\n\n\n\nOpportunity\n\nExpected to breakeven next year.\n\n\nHas sufficient cash runway for more than 3 years based on current free cash flows.\n\n\nGood value based on P/S ratio and estimated fair value.\n\n\n\nThreat\n\nTotal liabilities exceed total assets, which raises the risk of financial distress.\n\n\nPaying a dividend but company is unprofitable.\n\n\nIs SMG well equipped to handle threats?\n\n\n\n Moving On: \n Whilst important, the DCF calculation ideally won't be the sole piece of analysis you scrutinize for a company. DCF models are not the be-all and end-all of investment valuation. Instead the best use for a DCF model is to test certain assumptions and theories to see if they would lead to the company being undervalued or overvalued. If a company grows at a different rate, or if its cost of equity or risk free rate changes sharply, the output can look very different. For Scotts Miracle-Gro, there are three pertinent aspects you should further research: \n\n Risks: Take risks, for example - Scotts Miracle-Gro has   2 warning signs  (and 1 which is concerning)  we think you should know about. \nFuture Earnings: How does SMG's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.\n Other High Quality Alternatives: Do you like a good all-rounder? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing! \n\n PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the NYSE every day. If you want to find the calculation for other stocks just search here.\nHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2481127747"}