Sonoco Products Company SON is poised to gain from pricing initiatives and focus on new product development. A strong balance sheet also enables the company to invest in growth and acquisitions.
At present, Sonoco carries a Zacks Rank #3 (Hold). It has a VGM Score of A. Our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 offer the best investment opportunities for investors.
Shares of Sonoco have gained 6.4% over the past year, against the industry's decline of 24.9%.
Positive Earnings Surprise History
Sonoco has delivered a positive earnings surprise history of 3.62% inthe trailing four quarters.
The trailing 12-month EV/EBITDA ratio is 9.38 for the company, while the industry's average trailing 12-month EV/EBITDA ratio is pegged higher at 24.08. This implies that the stock is cheaper.
Superior Return on Assets
Sonoco currently has a Return on Assets (ROA) of 7.5%, while the industry recorded ROA of 4.7%. An above-average ROA denotes that the company is generating earnings by effectively managing assets.
Upbeat 2019 Guidance
For 2019, Sonoco anticipates adjusted earnings per share in the range of 3.50 to $3.54. The mid-point of the guidance range indicates an improvement of 4% from the $3.37 reported in 2018. Earnings growth in 2019 is likely to be driven by positive price and cost, lower tax rate, and benefits from the Conitex and Corenso acquisitions. The company’s focus on optimizing businesses through process improvement, standardization and cost control will also aid results. Further, restructuring actions are likely to lower costs in the range of $15 million to $20 million this year.
Positive Growth Projections
The Zacks Consensus Estimate for fiscal 2019 is currently pegged at $3.54, indicating an improvement of 5.04% from the prior-year quarter. For fiscal 2020, the estimate stands at $3.66 suggesting growth of 3.52% from the year-ago reported figure.
Growth Drivers in Place
Sonoco remains focused on acquisitions in targeted growth areas of flexible packaging and thermal formed rigid plastic containers, and development of new 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 enable the company in expanding manufacturing presence in the Americas, Europe, and rapidly growing emerging markets in Asia. Moreover, Sonoco’s acquisition of Corenso Holdings America creates a long-term opportunity for the company by expanding its paperboard and core converting operations.
Sonoco’s focus on optimizing businesses through process improvement, standardization and cost control will also aid results. Further, the company is focused on driving growth, margin expansion and generating solid free cash flow.
The company has an estimated long-term earnings growth rate of 4.50%.
Stocks to Consider
Some better-ranked stocks in the Industrial Products sector are Northwest Pipe Company NWPX, Tennant Company TNC and Sharps Compliance Corp SMED. All of these stocks sport a Zacks Rank #1, at present. You can see the complete list of today's Zacks #1 Rank stocks here.
Northwest Pipe has an expected earnings growth rate of 15.8% for the current year. The stock has appreciated 33% over the past year.
Tennant has a projected earnings growth rate of 29.8% for 2019. The company’s shares have rallied 17% over the past year.
Sharps Compliance has an estimated earnings growth rate of 500% for the ongoing year. In a year’s time, the company’s shares have gained 15%.
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