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Here's Why You Should Hold Sonoco Stock in Your Portfolio Now

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Sonoco Products Company (SON - Free Report) is poised to gain from pricing initiatives, focus on new product development, and acquisitions despite input cost inflation.

Below, we briefly discuss the company's potential growth drivers and possible challenges.
 
Factors Favoring Sonoco
 
Favorable Zacks Rank & VGM Score
 
At present, Sonoco 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.

Price Performance

Shares of Sonoco have gained around 5%, over the past year, outperforming the industry 's decline of 32.7%.



Positive Earnings Surprise History

Sonoco outpaced the Zacks Consensus Estimate in three of the trailing four quarters, the average beat being 3.19%.

Cheaper Valuation
 
The trailing 12-month EV/EBITDA ratio is 9.2 for the company, while the industry's average trailing 12-month EV/EBITDA ratio is pegged higher at 32.3. This implies that the stock is cheaper.
 
Return on Assets
 
Sonoco currently has a Return on Assets (ROA) of 7.4%, while the industry recorded ROA of 6.3%. An above-average ROA denotes that the company is generating earnings by effectively managing assets.
 
Upbeat 2019 Guidance
 
For 2019, Sonoco reaffirmed its adjusted earnings per share guidance in the range of $3.52 to $3.62. The mid-point of the guidance reflects an improvement of 7.5% over earnings of $3.37 per share recorded in 2018. The company’s third-quarter 2019 earnings are projected at 88-94 cents per share compared with the 86 cents recorded in the year-ago quarter. The mid-point of the new guidance suggests year-over-year growth of 5.8%.
 
Earnings growth in 2019 is likely to be aided by a combination of positive price and cost, lower tax rate, and benefits from the Conitex and Corenso acquisitions.

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. Last October, 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. The acquisition will likely be conducive to the company’s annual sales in the Paper and Industrial Converted Products segments.
 
Recently, Sonoco completed the acquisition of Corenso Holdings America, Inc.. The deal creates a long-term opportunity for Sonoco by expanding its paperboard and core converting operations. These acquisitions are likely to be accretive to the company’s earnings growth in the ongoing year.

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 4.67%.

Headwinds to Conquer
 
Impact of tariffs on steel, aluminum and other products will continue to hurt Sonoco's results. The company is also facing inflationary cost pressure from higher freight, wages, energy and elevated cost for materials, particularly resins. We believe the company will gain from its pricing initiatives to combat inflation.
 
Over the past few years, Consumer Packaging volumes have been flat to down as consumers' preference for packaged food is being adversely impacted by the shift in taste for fresher and natural products.
 
Bottom Line
 
Investors are likely to retain the stock, at present, as it has ample prospects for outperforming its peers in the near future.

Sonoco Products Company Price and Consensus

Stocks to Consider

A few better-ranked stocks in the Industrial Products sector are Unifirst Corporation (UNF - Free Report) , Albany International Corporation (AIN - Free Report) and Avery Dennison Corporation (AVY - Free Report) . While Unifirst flaunts a Zacks Rank #1, Albany International and Avery Dennison carry a Zacks Rank of 2, currently. You can see the complete list of today’s Zacks #1 Rank stocks here.

Unifirst has a projected earnings growth rate of 15.17% for the current year. The stock has gained 8.5% in a year’s time.

Albany International has an estimated earnings growth rate of 32.3% for 2019. The company’s shares have been up 8.3% in the past year.

Avery Dennison has an expected earnings growth rate of 8.42% for the ongoing year. The stock has appreciated 7% over the past year.

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