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

Sonoco Products Company SON scaled a fresh 52-week high of $65.37 during the Apr 7 trading session, before retracting to close at $63.97. The company’s sale of its Display and Packaging business in the United States which will help it focus more on its core Consumer and Industrial packaging businesses, has led to the upside. Forecast-topping fourth-quarter 2020 results, robust demand for the consumer packaging business and an upbeat outlook for 2021 have also been contributing to the company’s price appreciation.

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 contributions from acquisitions. Revenues of $1.38 billion also beat the Zacks Consensus Estimate of $1.31 billion and increased 3% year on year.

Sonoco has a trailing four-quarter average earnings surprise of 6.46%. The company has an estimated long-term earnings growth rate of 5%.

Share Price Performance

The company’s shares have gained 26.6% in the past year compared with the industry’s growth of 46.5%.

Driving Factors

Sonoco’s 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. In addition, demand in the Industrial Paper Packaging segment’s served markets continues to show sequential improvement. Paperboard operations in North America are gaining from elevated demand for the tissue and towel markets.

The Protective Solutions segment is likely to have witnessed higher demand in the pharmaceutical and appliance-served markets during the March-end quarter. Last month, Sonoco’s ThermoSafe unit entered into an agreement with Unilode Aviation Solutions in a bid to transport pharmaceuticals and other temperature-sensitive products safely and efficiently around the globe.
The ThermoSafe packaging business is anticipated to gain from a strong flu vaccine season, and solid demand from its base pharmaceutical and food customers.

Considering these factors, Sonoco projects adjusted earnings per share between $3.40 and $3.60 for 2021, indicating year-over-year growth of 3% at the mid-point. Management also projects sales volume improvement across all segments.

The company is focused on driving growth and margin expansion, and generating solid free cash flow. Sonoco’s balance-sheet strength and availability of substantial liquidity in the form of cash and revolving credit facilities will stoke growth. Apart from this, Sonoco’s focus on optimizing businesses through productivity improvement, standardization and cost control will aid its performance in the near term.

Recently, the company divested its Display and Packaging business in the United States to Hood Container Corporation for cash proceeds of $80 million. The divesture supports Sonoco’s focus on expanding its core Consumer and Industrial packaging businesses across the globe. Net proceeds from the sale are likely to be utilized in further investments and returning capital to shareholders.

Positive Growth Projections

The Zacks Consensus Estimate for 2021 earnings is currently pegged at $3.54, indicating year-over-year growth of 3.81%. The same for 2022 is pinned at $3.79, suggesting a year-over-year improvement of 7%.

Zacks Rank & Stocks to Consider

Sonoco currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the Industrial Products sector are Deere & Co. DE, AGCO Corp. AGCO and Crown Holdings, Inc. CCK. While Deere sports a Zacks Rank #1 (Strong Buy), AGCO and Crown Holdings carry Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

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

AGCO 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.

Crown Holdings has an expected earnings growth rate of 16.2% for 2021. The stock has appreciated 80.1% in a year’s time.

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