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Sonoco or Berry Global: Which is the Better Buy Rated Stock?
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Packaging demand has remained remarkably consistent in the past decade and consequently the industry has outperformed the S&P 500. Customer convenience remains the top priority for the companies in the global packaging market and thus they remain constantly focused on bringing in new packaging designs or redesigning their existing packaging as per customer preferences.
The packaging companies are focused on expanding geographic reach and realigning product offerings to reduce operational costs. They are targeting on high growth segments to strengthen financial position in the market.
At present, the market is witnessing intense restructuring and consolidation because of the overcapacity. The preference for value-added services and customized packaging solutions to provide convenience, safety, durability as well as freshness protection will continue to boost the industry.
Currently the Zacks categorized Containers –Paper and Packaging sub industry is enjoying a Zacks Industry Rank of 91. The favorable rank places the industry in the top 36% of the 250+ groups enlisted. In this context, we focus on two major packaging companies, Sonoco Products Company (SON - Free Report) and Berry Global Group, Inc. (BERY - Free Report) . While both the packaging stocks have a Zacks Rank #2 (Buy), it will be interesting to see which stock is better positioned in terms of fundamentals. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other stocks in the same industry that are worth considering include AptarGroup, Inc. (ATR - Free Report) sporting a Zacks Rank #1 and UFP Technologies, Inc. (UFPT - Free Report) , carrying a Zacks Rank #2.
Price Performance
In the last year, the Containers –Paper and Packaging sub industry has witnessed an increase of 19.9%. While Berry Global Group has outpaced the industry considerably with a 55.5% surge, Sonoco has grossly underperformed with a meagre rise of 8.7%. This round goes to Berry Global Group without a question.
Valuation
The EV/EBITDA metric is usually used to compare two stocks within the same industry or sector and has an edge over other metrics such as P/E because it is not affected by the different capital structures of the two companies. Compared with subindustry’s EV/EBITDA ratio of 12.82, both Sonoco and Berry Global Group are under-priced, with respective readings of 8.9 and 10.46. Clearly, Sonoco is cheaper in terms of valuation.
Inventory Turnover Ratio
In the last year, the inventory turnover ratio for Sonoco and Berry Global Group has been 9.68% and 7.38%, respectively, higher than the industry’s level of 6.67%. A higher turnover than the industry average means that inventory is sold at a faster rate, suggesting inventory management effectiveness. Further, a high inventory turnover rate means less company resources are tied up in inventory and the company is able to manage inventory effectively to generate revenues and avoid wastage. Clearly, Sonoco has scored better on this front.
Return on Assets
Return on assets (ROA) is one of the key financial ratios for packaging companies as they rely heavily on inventory to create revenues. An above-average ROA denotes that the company in question is generating earnings by effectively managing assets.
Sonoco and Berry Global Group’s ROA for the trailing 12-months (TTM) is 6.95% and 4.01%, respectively. Sonoco has scored above the industry’s level of 5.92% while Berry Global Group falls short. This round easily goes to Sonoco.
Dividend Yield
In the last one-year period, Sonoco’s dividend yield of 3.06% has been higher than the industry’s 1.85%, Berry Global Group does not pay dividends. In Apr 2017, Sonoco’s Board of Directors declared a 5.4% increase in quarterly dividend to $0.39 per share.
Debt to Capital
Berry Global Group has a highly levered balance sheet as evident from its debt-to-capital ratio of 89.6% which is higher than the industry average of 70% and Sonoco’s 42.25%.
Earnings Performance in the Last Quarter
In the first quarter of 2017, Sonoco reported adjusted earnings of 59 cents per share, down 9% year over year. Earnings beat the Zacks Consensus Estimate of 57 cents per share and came within management’s guidance range of 55–63 cents. Earnings were negatively impacted by lower volume/mix, divestitures, net of acquisitions, a negative price/cost relationship, and higher labor, maintenance, pension and other operating expenses. Procurement savings, fixed-cost productivity, lower management incentive expense, and a lower effective tax rate were minor headwinds. (Read more: Sonoco Q1 Earnings Beat Estimates, Revenues In Line)
Berry Global Group’s adjusted earnings per share for second-quarter fiscal 2017 (ended Apr 1, 2017) improved 36% year over year to 79 cents per share. Earnings beat the Zacks Consensus Estimate of 67 cents. The company also posted record net sales for any quarter in its history of $1.806 billion. Acquisition and organic sales volume increases, cost saving initiatives and productivity improvements in operations offset by negative product mix and price/cost spread, led to the overall improvement in earnings.
Earnings Surprise History
Taking a look at both the companies surprise history, Sonoco has outpaced the Zacks Consensus Estimate in three of the four trailing quarters, with an average positive earnings surprise history of 3.79%. Meanwhile, Berry Global Group has delivered positive earnings surprises in the trailing four quarters, generating an average positive earnings surprise of 22.36%.
Earnings Estimate Revisions, Growth
On one hand, earnings estimates for Berry Global Group have gone up 5% for fiscal 2017 and 3% for fiscal 2018 in the past 60 days. On the other hand, estimates have been stable for Sonoco.
Sonoco’s fiscal 2017 earnings estimates reflects a year–over-year growth of 2% while the fiscal 2018 earnings estimate reflects a year-over-year growth of 7.93%. Berry Global Group’s earnings estimates for fiscal 2017 and fiscal 2018 depict a projected growth of 13.44% and 14.68%, respectively. Berry Global Group has an expected earnings per share growth rate of 19.17%, much higher than Sonoco’s 5.25%. Berry Global Group is a clear winner here.
Conclusion
Our comparative analysis shows that Sonoco holds an edge over Berry Global Group when considering profitability, valuation ratios, inventory turnover and leverage. However, when considering price performance, average positive earnings surprise and earnings growth projections, Berry Global is clearly a better stock. Since there is little to choose between the two, both these Zacks Rank #2 stocks would make great additions to your portfolio.
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Sonoco or Berry Global: Which is the Better Buy Rated Stock?
Packaging demand has remained remarkably consistent in the past decade and consequently the industry has outperformed the S&P 500. Customer convenience remains the top priority for the companies in the global packaging market and thus they remain constantly focused on bringing in new packaging designs or redesigning their existing packaging as per customer preferences.
The packaging companies are focused on expanding geographic reach and realigning product offerings to reduce operational costs. They are targeting on high growth segments to strengthen financial position in the market.
At present, the market is witnessing intense restructuring and consolidation because of the overcapacity. The preference for value-added services and customized packaging solutions to provide convenience, safety, durability as well as freshness protection will continue to boost the industry.
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Currently the Zacks categorized Containers –Paper and Packaging sub industry is enjoying a Zacks Industry Rank of 91. The favorable rank places the industry in the top 36% of the 250+ groups enlisted. In this context, we focus on two major packaging companies, Sonoco Products Company (SON - Free Report) and Berry Global Group, Inc. (BERY - Free Report) . While both the packaging stocks have a Zacks Rank #2 (Buy), it will be interesting to see which stock is better positioned in terms of fundamentals. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other stocks in the same industry that are worth considering include AptarGroup, Inc. (ATR - Free Report) sporting a Zacks Rank #1 and UFP Technologies, Inc. (UFPT - Free Report) , carrying a Zacks Rank #2.
Price Performance
In the last year, the Containers –Paper and Packaging sub industry has witnessed an increase of 19.9%. While Berry Global Group has outpaced the industry considerably with a 55.5% surge, Sonoco has grossly underperformed with a meagre rise of 8.7%. This round goes to Berry Global Group without a question.
Valuation
The EV/EBITDA metric is usually used to compare two stocks within the same industry or sector and has an edge over other metrics such as P/E because it is not affected by the different capital structures of the two companies. Compared with subindustry’s EV/EBITDA ratio of 12.82, both Sonoco and Berry Global Group are under-priced, with respective readings of 8.9 and 10.46. Clearly, Sonoco is cheaper in terms of valuation.
Inventory Turnover Ratio
In the last year, the inventory turnover ratio for Sonoco and Berry Global Group has been 9.68% and 7.38%, respectively, higher than the industry’s level of 6.67%. A higher turnover than the industry average means that inventory is sold at a faster rate, suggesting inventory management effectiveness. Further, a high inventory turnover rate means less company resources are tied up in inventory and the company is able to manage inventory effectively to generate revenues and avoid wastage. Clearly, Sonoco has scored better on this front.
Return on Assets
Return on assets (ROA) is one of the key financial ratios for packaging companies as they rely heavily on inventory to create revenues. An above-average ROA denotes that the company in question is generating earnings by effectively managing assets.
Sonoco and Berry Global Group’s ROA for the trailing 12-months (TTM) is 6.95% and 4.01%, respectively. Sonoco has scored above the industry’s level of 5.92% while Berry Global Group falls short. This round easily goes to Sonoco.
Dividend Yield
In the last one-year period, Sonoco’s dividend yield of 3.06% has been higher than the industry’s 1.85%, Berry Global Group does not pay dividends. In Apr 2017, Sonoco’s Board of Directors declared a 5.4% increase in quarterly dividend to $0.39 per share.
Debt to Capital
Berry Global Group has a highly levered balance sheet as evident from its debt-to-capital ratio of 89.6% which is higher than the industry average of 70% and Sonoco’s 42.25%.
Earnings Performance in the Last Quarter
In the first quarter of 2017, Sonoco reported adjusted earnings of 59 cents per share, down 9% year over year. Earnings beat the Zacks Consensus Estimate of 57 cents per share and came within management’s guidance range of 55–63 cents. Earnings were negatively impacted by lower volume/mix, divestitures, net of acquisitions, a negative price/cost relationship, and higher labor, maintenance, pension and other operating expenses. Procurement savings, fixed-cost productivity, lower management incentive expense, and a lower effective tax rate were minor headwinds. (Read more: Sonoco Q1 Earnings Beat Estimates, Revenues In Line)
Berry Global Group’s adjusted earnings per share for second-quarter fiscal 2017 (ended Apr 1, 2017) improved 36% year over year to 79 cents per share. Earnings beat the Zacks Consensus Estimate of 67 cents. The company also posted record net sales for any quarter in its history of $1.806 billion. Acquisition and organic sales volume increases, cost saving initiatives and productivity improvements in operations offset by negative product mix and price/cost spread, led to the overall improvement in earnings.
Earnings Surprise History
Taking a look at both the companies surprise history, Sonoco has outpaced the Zacks Consensus Estimate in three of the four trailing quarters, with an average positive earnings surprise history of 3.79%. Meanwhile, Berry Global Group has delivered positive earnings surprises in the trailing four quarters, generating an average positive earnings surprise of 22.36%.
Earnings Estimate Revisions, Growth
On one hand, earnings estimates for Berry Global Group have gone up 5% for fiscal 2017 and 3% for fiscal 2018 in the past 60 days. On the other hand, estimates have been stable for Sonoco.
Sonoco’s fiscal 2017 earnings estimates reflects a year–over-year growth of 2% while the fiscal 2018 earnings estimate reflects a year-over-year growth of 7.93%. Berry Global Group’s earnings estimates for fiscal 2017 and fiscal 2018 depict a projected growth of 13.44% and 14.68%, respectively. Berry Global Group has an expected earnings per share growth rate of 19.17%, much higher than Sonoco’s 5.25%. Berry Global Group is a clear winner here.
Conclusion
Our comparative analysis shows that Sonoco holds an edge over Berry Global Group when considering profitability, valuation ratios, inventory turnover and leverage. However, when considering price performance, average positive earnings surprise and earnings growth projections, Berry Global is clearly a better stock. Since there is little to choose between the two, both these Zacks Rank #2 stocks would make great additions to your portfolio.
Looking for Ideas with Even Greater Upside?
Most of Zacks’ investment ideas are short-term, directly based on our proven 1 to 3 month indicator. In addition, I invite you to consider our long-term opportunities. These rare trades look to start fast with strong Zacks Ranks, but carry through with double and triple-digit profit potential. Starting now, you can look inside our home run, value, and stocks under $10 portfolios, plus more. Click here for a peek at this private information>>