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Here's Why You Should Hold On to Sonoco (SON) Stock Right Now
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Sonoco Products Company (SON - Free Report) is gaining from forecast-topping earnings results in the third quarter, robust demand from consumer packaging business, focus on productivity improvement and cost-control initiatives. Moreover, a strong balance sheet helps the company invest in growth and acquisitions. However, high material costs and the pandemic’s unfavorable impact on the company’s operations are concerns.
Sonoco currently carries a Zacks Rank #3 (Hold). It has a VGM Score of B. 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.
The company has an estimated long-term earnings growth rate of 5%.
Earnings Beat Estimates in Q3
Sonoco reported adjusted earnings of 86 cents in the third quarter, beating the Zacks Consensus Estimate of 81 cents as well as management’s guidance of 73-83 cents. Net sales of $1.31 billion came in line with the Zacks Consensus Estimate.
Positive Earnings Surprise History
Sonoco has a trailing four-quarter average earnings surprise of 4.84%.
Valuation is Inexpensive
The trailing 12-month EV/EBITDA ratio is 8.4 for the company, while the industry's average trailing 12-month EV/EBITDA ratio is 24.4
Superior Return on Assets
Sonoco currently has a Return on Assets (ROA) of 6.3%, higher than the industry’s 5.1%. An above-average ROA denotes that the company is generating earnings by effectively managing its assets.
Growth Drivers in Place
Sonoco expects the Consumer Packaging segment to perform well in the current quarter as order levels for food packaging remains strong as customers are forced to stay at home amid the pandemic. Notably, 80% of the segment’s sales come in from food packaging. Further, paperboard operations in North America are likely to be relatively steadier, as elevated demand for the tissue and the towel market will help offset declines from some industrial converted-product businesses.
The Protective Solutions segment is likely to witness improved demand in the pharmaceutical and appliance served markets during the December-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.
Sonoco’s focus on optimizing businesses through productivity improvement, standardization and cost control will aid its performance in the near term. In addition, stable Old Corrugated Containers (OCC) price is likely to offset the negative impacts of price/cost, and improving operating margins in the current quarter. Notably, OCC is the largest raw material used by the company's recycled paperboard mills.
The company is focused on driving growth, margin expansion and generating solid free cash flow. Sonoco’s balance-sheet strength and availability of substantial liquidity place it well to sail through the current crisis. 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.
Few Headwinds to Counter
Sonoco expects adjusted earnings per share between 70 cents and 80 cents for the fourth quarter compared with the prior-year quarter’s 75 cents per share. Moreover, the company expects demand to shrink, indicating the normal year-end slowdown trend. Though management anticipates a stable global macroeconomic environment, this recovery might be short lived due to the second wave of coronavirus cases in Europe and certain parts of the United States.
The Paper and Industrial Converted Products segment will be affected by a negative price/cost relationship during the ongoing quarter due to higher year-over-year recycled fiber costs and lower market pricing. The Display and Packaging business will continue to see weak retail promotional display activity.
Price Performance
Shares of Sonoco have gained 21.1% over the past six months compared with the industry's growth of 32.7%.
Crown Holdings has a projected earnings growth rate of 11.7% for fiscal 2020. Over the past six months, the company’s shares have appreciated 56.2%.
iRobot has an estimated earnings growth rate of 18.8% for the ongoing year. The company’s shares have gained 19.2% over the past six months.
SiteOne Landscape has an expected earnings growth rate of 28.6% for 2020. The stock has climbed 51.7% over the past six months.
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Here's Why You Should Hold On to Sonoco (SON) Stock Right Now
Sonoco Products Company (SON - Free Report) is gaining from forecast-topping earnings results in the third quarter, robust demand from consumer packaging business, focus on productivity improvement and cost-control initiatives. Moreover, a strong balance sheet helps the company invest in growth and acquisitions. However, high material costs and the pandemic’s unfavorable impact on the company’s operations are concerns.
Sonoco currently carries a Zacks Rank #3 (Hold). It has a VGM Score of B. 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.
The company has an estimated long-term earnings growth rate of 5%.
Earnings Beat Estimates in Q3
Sonoco reported adjusted earnings of 86 cents in the third quarter, beating the Zacks Consensus Estimate of 81 cents as well as management’s guidance of 73-83 cents. Net sales of $1.31 billion came in line with the Zacks Consensus Estimate.
Positive Earnings Surprise History
Sonoco has a trailing four-quarter average earnings surprise of 4.84%.
Valuation is Inexpensive
The trailing 12-month EV/EBITDA ratio is 8.4 for the company, while the industry's average trailing 12-month EV/EBITDA ratio is 24.4
Superior Return on Assets
Sonoco currently has a Return on Assets (ROA) of 6.3%, higher than the industry’s 5.1%. An above-average ROA denotes that the company is generating earnings by effectively managing its assets.
Growth Drivers in Place
Sonoco expects the Consumer Packaging segment to perform well in the current quarter as order levels for food packaging remains strong as customers are forced to stay at home amid the pandemic. Notably, 80% of the segment’s sales come in from food packaging. Further, paperboard operations in North America are likely to be relatively steadier, as elevated demand for the tissue and the towel market will help offset declines from some industrial converted-product businesses.
The Protective Solutions segment is likely to witness improved demand in the pharmaceutical and appliance served markets during the December-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.
Sonoco’s focus on optimizing businesses through productivity improvement, standardization and cost control will aid its performance in the near term. In addition, stable Old Corrugated Containers (OCC) price is likely to offset the negative impacts of price/cost, and improving operating margins in the current quarter. Notably, OCC is the largest raw material used by the company's recycled paperboard mills.
The company is focused on driving growth, margin expansion and generating solid free cash flow. Sonoco’s balance-sheet strength and availability of substantial liquidity place it well to sail through the current crisis. 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.
Few Headwinds to Counter
Sonoco expects adjusted earnings per share between 70 cents and 80 cents for the fourth quarter compared with the prior-year quarter’s 75 cents per share. Moreover, the company expects demand to shrink, indicating the normal year-end slowdown trend. Though management anticipates a stable global macroeconomic environment, this recovery might be short lived due to the second wave of coronavirus cases in Europe and certain parts of the United States.
The Paper and Industrial Converted Products segment will be affected by a negative price/cost relationship during the ongoing quarter due to higher year-over-year recycled fiber costs and lower market pricing. The Display and Packaging business will continue to see weak retail promotional display activity.
Price Performance
Shares of Sonoco have gained 21.1% over the past six months compared with the industry's growth of 32.7%.
Stocks to Consider
Some better-ranked stocks in the Industrial Products sector are Crown Holdings, Inc. (CCK - Free Report) , iRobot Corporation (IRBT - Free Report) and SiteOne Landscape Supply, Inc. (SITE - Free Report) . While Crown Holdings and iRobot sport a Zacks Rank #1, SiteOne Landscape carries a Zacks Rank of 2, at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Crown Holdings has a projected earnings growth rate of 11.7% for fiscal 2020. Over the past six months, the company’s shares have appreciated 56.2%.
iRobot has an estimated earnings growth rate of 18.8% for the ongoing year. The company’s shares have gained 19.2% over the past six months.
SiteOne Landscape has an expected earnings growth rate of 28.6% for 2020. The stock has climbed 51.7% over the past six months.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by referendums and legislation, this industry is expected to blast from an already robust $17.7 billion in 2019 to a staggering $73.6 billion by 2027. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot stocks we're targeting >>