SCOTTS MIRACLE-GRO CO (SMG) stock intrinsic value fair value estimate & owner earnings analysis

Scotts Miracle-Gro sells consumer lawn and garden products under the Scotts, Miracle-Gro, Ortho and Tomcat brands and markets Roundup for Bayer in the United States. Home Depot and Lowe's together took 52% of fiscal 2025 sales, so the business is essentially a branded supplier to two retailers, with sales concentrated in the spring season. In April 2026 the company handed its loss-making hydroponics business, Hawthorne, to Vireo Growth in exchange for Vireo shares; the remaining company sells no cannabis and the Vireo stake is not counted in our value. Earnings level. We measured the cash the business throws off before paying its lenders: operating cash flow with working-capital swings stripped out, stock pay charged as a cost, and the capital spending needed to stand still deducted. Over fiscal 2016-2025 that figure ran $341M, $284M, $202M, $322M, $527M, $590M, $165M, $124M, $281M and $367M. The 2020-2021 boom and the 2022-2023 bust were both driven largely by Hawthorne and retailer destocking. The ten-year median is about $300M, which we use as the normal level for the remaining consumer business. Fiscal 2025's $367M is flattered by about $70M of deferred tax: cash taxes were only $13M because of earlier losses, and that shelter runs out. Intangible amortization is small (about $12M a year), so no wasting-asset adjustment was needed. What it owes. At June 27, 2026 borrowings were about $2.11 billion against $28M of cash. They include fixed notes at 4.5% due 2029, 4.0% due 2031 and 4.375% due 2032, plus the $250M of 5.25% notes due December 2026 and a bank term loan. About $160M of receivables sold to JPMorgan under an uncommitted program that must be renewed each year works like debt, so we add it. The cheap fixed coupons are worth roughly $90M against that. We put net debt at about $2.15 billion, or roughly $36 per share. Leverage was 4.1 times at September 2025 against a 5.0 times covenant. Dividends are restricted while leverage is above 4.0 times. Base case: $58.56 per share. The business starts at $300M a year before interest and grows 1.5% a year for ten years, then holds flat. That growth is credited only to price increases the brands have pushed through over many years, not to volume or share gains. Owner earnings rose sharply last year off a depressed base; we assume 1.5% for year one, well below that rate, and nine-month continuing sales are up only about 2%. The business is worth about $5.6 billion, it owes about $2.15 billion, and roughly $3.47 billion is left for shareholders. Bear case: $24.52 per share. We model a repeat of the 2022-2023 lawn and garden downturn, when retailers cut inventory and wet springs hit volume. Cash flow before interest falls to about $150M for two years, recovers to $200M, then settles at $240M for good as the tax shelter is used up and the two big retailers press on terms. Refinancing the 2026 notes and the term loan at higher rates pushes the effective debt to about $2.35 billion. In that case the business is worth about $3.8 billion against $2.35 billion owed. Cash flow only just covers interest in the trough years, which is why this case cannot be made milder. Bull case: $76.57 per share. With Hawthorne's losses gone and the disclosed cost-savings program delivering, the consumer business earns about $330M before interest and grows 2.5% a year. It is worth about $6.7 billion against $2.15 billion owed. What could make this wrong. The earnings level rests on a ten-year history that includes very different business mixes. The two-retailer concentration and the $2 billion of debt mean a bad spring or a lost shelf could move value quickly. The receivables program expires each September and is uncommitted. Margin-of-safety price: $28. We are only moderately confident in the $300M level. The worst plausible outcome is a multi-year weather or retailer downturn while the 2029 notes and the term loan need refinancing. Leverage would then breach the covenant, and the company would have to cut the dividend or issue shares at depressed prices. The bear case, at about $24, is close to that outcome. From $28 the bear case implies a modest loss. If the business simply holds its normal level, value of around $58 is reached within four to five years. Meanwhile the $2.64 dividend, if maintained, is more than 9% a year of that price, and together those imply more than a 20% annual return. The dividend is not secure while leverage stays above 4 times, so we do not lean on it. Previous figures were prepared on a different basis and are not comparable.