Here’s why you should keep Sonoco (SON) in your portfolio
Sonoco Products Company SON benefits from steady customer demand, recent acquisitions and productivity initiatives.
The company has a Zacks rank #3 (hold) and an average trailing four-quarter earnings surprise of 6.1%.
Sonoco’s shares are up 7.1% over the past year, compared to industry growth of 4.6%.
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Sonoco will continue to benefit from its resilient consumer demand. The focus is on optimizing companies through increased productivity, standardization and cost control. The company has implemented several synergy opportunities, including optimizing raw material purchasing, utilizing indirect spend and coordinating supply chain logistics, which are expected to contribute to its results in the near future.
Recent acquisitions such as Denmark-based Skjern in Q4 2022 are expected to expand SON’s production capacity and help capitalize on the growing market for sustainable paper and packaging products in Europe.
The Company also acquired the remaining equity interest in RTS Packaging, LLC in November 2022 and Ball Metalpack (now Sonoco Metal Packaging) in January 2022. These acquisitions align well with Sonoco’s long-term strategy to focus on its core integrated businesses and expand its sustainable consumer packaging portfolio.
The company is conducting aggressive pricing actions across all of its businesses to counteract higher commodity and non-material inflation. Continued strong price and cost recovery across most businesses, benefits from the Metal Packaging acquisition and solid demand are likely to contribute to SON’s 2023 results.
SON emphasizes capital allocation and expects to increase dividends while maintaining an investment-grade balance sheet. The company intends to increase the return on invested capital over the coming years through organic investments in value-added acquisitions and portfolio streamlining.
Based on better-than-expected 2022 results, Sonoco expects adjusted earnings per share to be between $5.70 and $5.90. Compared to the value reported in 2020, the mid-point of the forecast indicates a CAGR of 15%.
A couple of concerns
The company faces headwinds from higher raw material, energy and freight costs. Supply chain disruptions are also a concern.
In addition, Sonoco’s bottom line results will be adversely affected by currency translation and divestitures and increased selling, general and administrative expenses.
In the consumer packaging segment, volumes in the current quarter will be lower for seasonal reasons.
Meanwhile, the performance of the Industrial Products segment will reflect the impact of continued weakness in Europe and Asia, as well as seasonality and weak production volumes in North America.
Sonoco Products Company Price and Consensus
Sonoco Products Company Price Consensus Chart | Quote from Sonoco Products Company
Stocks to consider
Some better rated stocks from the industrial products sector are OI glass OI, Tenaris TS and dover DOV. OI and TS currently sport a Zacks Rank #1 (Strong Buy) and DOV has a Zacks Rank #2 (Buy). You can see the full list of today’s Zacks #1 Rank stocks can be found here.
OI Glass has an average earnings surprise over the last four quarters of 16.4%. Zacks consensus estimate for OI’s 2023 earnings is set at $2.57 per share. This means an increase of 11.7% compared to the reported value of the previous year. The consensus estimate for 2023 earnings has moved up 16% over the past 60 days. OI shares are up 102.1% over the past year.
Tenaris has an average four-quarter earnings surprise of 11.5%. Zacks consensus estimate for TS earnings in 2023 is set at $6.12 per share. This means an increase of 41.3% compared to the value reported in the previous year. The consensus estimate for 2023 earnings has moved north by 18.1% over the past 60 days. Its shares are up 22.4% over the past year.
The Zacks Consensus estimate for Dover’s fiscal 2023 earnings per share is set at $8.99, indicating a 6.4% increase from the value reported last year. The consensus estimate for fiscal 2023 earnings is up 1.2% over the past 60 days. DOV has a four-quarter trailing average earnings surprise of 2.3%. Its shares are up 5.3% over the past year.
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