Sonoco Products Company
SON is poised to gain from pricing initiatives, focus on new product development, and acquisitions despite input cost inflation.
Sonoco currently has a Zacks Rank #2 (Buy) and a VGM Score of A. Our research shows that stocks with a VGM Score of A or B combined with a Zacks Rank #1 (Strong Buy) or 2, offer the best investment opportunities for investors. You can see the complete list of today’s Zacks #1 Rank stocks here .
Let's see what makes this leading provider of consumer packaging, industrial products, protective packaging and packaging supply chain services, an attractive investment option at the moment.
Shares of Sonoco have gained around 20.5% over the past year against the industry 's decline of 4.3%.
Positive Earnings Surprise History
Sonoco outpaced the Zacks Consensus Estimate in the trailing four quarters, with an average beat of 5.74%.
The trailing 12-month EV/EBITDA ratio is 10.1 for the company while the industry's average trailing 12-month EV/EBITDA ratio is pegged higher at 11.5. This implies that the stock is cheaper.
Return on Assets
Sonoco currently has a Return on Assets (ROA) of 7.5% while the industry recorded ROA of 6.1%. An above-average ROA denotes that the company is generating earnings by effectively managing assets.
Upbeat 2019 Guidance
For 2019, Sonoco’s adjusted earnings per share guidance is pegged at $3.52-$3.62. The mid-point of the guidance range indicates an improvement of 6% from the $3.37 reported in 2018. Earnings growth in 2019 is likely to be aided by combination of positive price and cost, lower tax rate, and benefit from the Conitex and Highland acquisitions. The company’s focus on optimizing businesses through process improvement, standardization and cost control will also aid results. Further, it will gain from pricing initiatives which in turn will aid it in combatting inflation.
Earnings Estimate Revision
Earnings estimate revisions impact the stock prices significantly. Estimates for 2019 for Sonoco have moved north over the past 60 days. Over this period, the Zacks Consensus Estimate for the year has moved up around 2%. The Zacks Consensus Estimate for 2020 has also increased roughly 1% over the same timeframe.
Growth Drivers in Place
The company is focused on targeted acquisitions and development of products. In October 2018, the company acquired the remaining 70% interest in the Conitex-Sonoco joint venture and Texpack's composite can operation in Spain. The buyout of Conitex Sonoco will assist the company in expanding manufacturing presence in the Americas, Europe, and rapidly growing emerging markets in Asia. It will also help build strong customer relationships by offering innovative packaging solutions in paperboard, textile carriers and other value-added products. The acquisition is expected to add around $260 million of annual sales in the company's Paper and Industrial Converted Products segment.
The company previously completed the buyout of Highland Packaging Solutions on April 2018 and Clear Lam on July 2017. The Highland acquisition is anticipated to add around $110 million annual sales in the Consumer Packaging segment. These acquisitions are likely to be accretive to the company’s earnings growth in 2019.
Sonoco also continues to focus on optimizing businesses through process improvement, standardization, cost control and commercial excellence. Its focus on thermoformed plastics, flexible packaging and consolidating industrial opportunities, particularly in the emerging markets, will also aid growth.
The company has an estimated long-term earnings growth rate of 4.7%.
Other Stocks to Consider
Investors interested in the Industrial Products sector can also consider other top-ranked players like DMC Global Inc. BOOM, Lawson Products, Inc. LAWS and Roper Technologies, Inc. ROP, each sporting a Zacks Rank #1.
DMC Global has an estimated earnings growth rate of 79.7% for the ongoing year. The company’s shares have soared 58%, in the past year.
Lawson Products has a stellar expected earnings growth rate of 24.5% for the current year. The stock has appreciated 56% in a year’s time.
Roper Technologies has a projected earnings growth rate of 7.9% for 2019. The company’s shares have gained 28% over the past year.
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