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Sonoco (SON) Hits 52-Week High: What's Driving this Upside?

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Zacks Equity Research
·4 min read
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Shares of Sonoco Products Company SON scaled a fresh 52-week high of $62.40 during the Mar 5 trading session, before retracting to close at $62.22. Forecast-topping fourth-quarter 2020 results, robust demand from the consumer packaging business and expected gains from focus on productivity improvement as well as cost-control initiatives have contributed to this price appreciation.

Earnings & Sales Beat the Consensus Mark in Q4

Sonoco reported adjusted earnings of 82 cents in fourth-quarter 2020, surpassing the Zacks Consensus Estimate of 77 cents as well as management’s guidance of 70-80 cents. Moreover, the bottom line improved 9% year over year on solid productivity improvements, higher volumes and contribution from acquisitions. Revenues of $1.38 billion also beat the Zacks Consensus Estimate of $1.31 billion and increased 3% year on year.

Positive Earnings Surprise History

Sonoco has a trailing four-quarter average earnings surprise of 6.46%.

Share Price Performance

Shares of Sonoco have gained 29.8% over the past year, outperforming the industry's growth of 48.7%.


Driving Factors

Sonoco believes the Consumer Packaging segment will continue to perform well in the current year as sales from food packaging keep benefiting from at-home eating habits amid the pandemic. Notably, 80% of the segment’s sales come in from food packaging. Moreover, demand in the Industrial Paper Packaging segment’s served markets continues to show sequential improvement. Further, paperboard operations in North America are benefiting from elevated demand for the tissue and the towel markets.

The Protective Solutions segment is likely to witness higher demand in the pharmaceutical and appliance served markets during the March-end quarter. The ThermoSafe temperature-assured packaging business is anticipated to gain from a strong flu vaccine season, and solid demand from its base pharmaceutical and food customers during the ongoing quarter. Considering these factors, Sonoco projects adjusted earnings per share between $3.40 and $3.60 in 2021, indicating year-over-year growth of 3% at the mid-point. The management also expects sales volume improvement across all segments.

The company is focused on driving growth, margin expansion and generating solid free cash flow. For 2021, management expects free cash flow in between $270 million and $300 million. Sonoco’s balance-sheet strength and availability of substantial liquidity in the form of cash and revolving credit facilities will stoke growth. In fact, Sonoco’s efforts to reduce debt levels appear encouraging. Sonoco’s net debt to total capital decreased from 45.8% at the end of 2019 to 37% at the end of 2020. It is also focused on acquisitions in the targeted growth areas of flexible packaging and thermoformed rigid plastic containers, along with the development of new products. Moreover, Sonoco’s focus on optimizing businesses through productivity improvement, standardization and cost control will aid its performance in the near term.

Positive Growth Projections

The Zacks Consensus Estimate for the ongoing year’s earnings is currently pegged at $3.54, indicating year-over-year growth of 3.81%. The same of 2022 is pinned at $3.77, suggesting year-over- year improvement of 6.6%.

Zacks Rank & Stocks to Consider

Sonoco currently carries a Zacks Rank #3 (Hold)

Some better-ranked stocks in the Industrial Products sector are Deere & Company DE, AGCO Corporation AGCO and Dover Corporation DOV. While Deere flaunts a Zacks Rank of 1, AGCO Corporation and Dover carry a Zacks Rank #2, at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Deere & Company has a projected earnings growth rate of 82.5% for fiscal 2021. Over the past year, the company’s shares have appreciated 133.2%.

AGCO Corporation has an estimated earnings growth rate of 29.9% for the ongoing year. The company’s shares have surged 134.1% in the past year.

Dover has an expected earnings growth rate of 13.7% for 2021. The stock has gained 38.7% in a year’s time.

Zacks Names “Single Best Pick to Double”

From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.

You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year.

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