Tuesday's election results favored not only Trump but also other measures on ballots all across the country. It was not just a presidential election as many states had numerous other measures on the ballots.
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SMG - Scotts Miracle Grow - Company Profile
The Scotts Miracle-Gro Company manufactures, markets, and sells consumer lawn and garden products worldwide. The company's Global Consumer segment offers lawn fertilizers, grass seed products, spreaders, other durable products, and outdoor cleaners, as well as lawn-related weed, pest, and disease control products; water soluble and continuous-release plant foods, potting mixes, garden soils, mulch and decorative groundcover products, landscape weed prevention products, plant-related pest and disease control products, organic garden products, live goods and seeding solutions, and hydroponic gardening products; and insect and rodent control products, and selective and non-selective weed control products to protect homes and maintain external home areas. This segment provides its products primarily under the Scotts, Turf Builder, EZ Seed, Water Smart, PatchMaster, EverGreen, Fertiligene, Substral, Miracle-Gro Patch Magic, Weedol, Pathclear, KB, Celaflor, EdgeGuard, Snap, Handy Green II, OxiClean, Miracle-Gro, Osmocote, Hyponex, Earthgro, SuperSoil, Ortho, Miracle-Gro Organic Choice, Nature's Care, Whitney Farms, EcoScraps, General Hydroponics, AeroGarden, Substral, ASEF, Scotts EcoSense, Naturen, Fafard, Tomcat, Roundup, Groundclear, Nexa Lotte, and Home Defence brand names. Its Scotts LawnService segment offers residential and commercial lawn care, tree and shrub care, and pest control services through the periodic applications of fertilizer and control products. Company description from FinViz.com.
Nine states had legalization of marijuana on the ballot in some form and eight approved the measures. California, Massachusetts, Maine and Nevada approved it for recreational use. Arkansas, Florida and North Dakota approved it for medical use, which is a first step towards eventual recreational use. Montana approved a measure for commercial growing and distribution. Arizona was the only state where a recreational use measure failed.
Scotts has already said the legalization of pot was good for their business since growers want to grow it fast and grow it indoors. Over the last two years, Scotts has acquired two hydroponic acquisitions. One of them was a marijuana nutrient and growing products maker. They are branching out into the equipment and lighting required for indoor plant cultivation with the acquisition of Gavita, a grow light and hardware producer. They recognize pot as an "emerging high-growth opportunity" under their Hawthorne Gardening Company brand. They want to invest $500 million in the marijuana industry.
Scotts recently spun off its Scotts LawnService yard fertilizer business into a partnership with TruGreen so that low margin business is gone. The partnership pays distributions back to Scotts.
In the last quarter sales rose 7% with consumer purchases rising 10%. This compares to the full year revenue growth of 2%. This shows how fast the business is growing with the new focus. They are projecting 6% to 7% revenue growth in 2017 and adjusted earnings of $4.10-$4.30. They called those numbers conservative.
Earnings Feb 2nd.
There are two ways to play this. The stock closed at $90.45 so the $90 strikes are slightly in the money and expensive. The December $95 strike is 95 cents. I like the price but there are only 37 days for the stock to move $5. There is no January strike. The next available is March at $2.85. I have a lot of confidence that SMG will be over $95 before their earnings on Feb 2nd. I am recommending we use the March strike and there will still be a lot of expectation built into the premium when we exit before earnings. I am recommending the March strike. We are buying time but we are not going to use it.
Also, the spread is 50 cents in the March option so the stop loss will be wide until we get closer to the money and that spread will narrow.
Buy March $95 call, currently $2.85, stop loss $86.25.
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