Here's Why You Should Hold Sonoco Stock In Your Portfolio

Sonoco Products Company (NYSE:SON) has been witnessing promising growth over the last few quarters, mainly driven by its pricing initiatives, acquisitions and focus on Grow and Optimize strategy. However, the impact of Hurricane Florence and cost inflation remain headwinds.

This Zacks Rank #3 (Hold) company has an estimated long-term earnings growth rate of 4.7%.

Below, we briefly discuss the company’s potential growth drivers and possible challenges.

Factors Favoring Sonoco

Price Performance

Shares of Sonoco have gained around 4% over the past year against the industry’s decline of 10%.

Positive Earnings Surprise History

Sonoco outpaced the Zacks Consensus Estimate in three of the last four reported quarters, the average beat being 3.61%.

Return on Assets

Sonoco currently has a Return on Assets (ROA) of nearly 7% while the industry recorded 6% ROA. An above-average ROA denotes that the company is generating earnings by effectively managing assets.

Growth Drivers in Place

Sonoco is on track to implement its Grow and Optimize strategy in 2018. The company steadily focuses on targeted acquisitions, development of products and income prospects in the United States. It will continue to set sights on optimizing businesses through process improvement, standardization, cost control and commercial excellence.

Sonoco is attentive to boost its inorganic growth profile. In October 2018, the company acquired the remaining 70% interest in the Conitex-Sonoco joint venture. The acquisition will assist the company in expanding its manufacturing presence in the Americas, Europe and the rapidly-growing emerging markets in Asia.

Further, the company bought Highland Packaging Solutions in April 2018 and Clear Lam in July 2017. Both acquisitions contributed $31 million to revenues at Sonoco’s Consumer Packaging segment during the third quarter of the current year. Moreover, these transactions are likely to be accretive to the company’s top line.

Sonoco will gain from its pricing initiatives to combat inflation. It recently announced price hikes in its Protective Solutions and Rigid Plastic Packaging business.

Concerns for Sonoco

Sonoco's paper mill operations in Hartsville, SC, were temporarily shut down in September 2018 due to floods caused by Hurricane Florence. The company had also temporarily closed operations at several of its recycling operations, tube and core plants plus other operations in Virginia, North Carolina and South Carolina, thanks to the impact of the storm. Production and sales incurred losses at affected facilities as the hurricane hurt third-quarter earnings. It might also hit fourth-quarter 2018 earnings by around 2-3 cents per share due to additional lost production and higher supply chain costs.

The company is also facing inflationary cost pressure from higher freight, wages and energy as well as escalated cost for materials, particularly resins.

Bottom Line

Investors are likely to retain the stock at present as it has ample prospects for outperforming its peers in the near future.

Stocks to Consider

Some better-ranked stocks in the same sector are Enersys (NYSE:ENS) , CECO Environmental Corp. (NASDAQ:CECE) and Flowserve Corp. (NYSE:FLS) , all three carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Enersys has a long-term earnings growth rate of 10%. Its shares have rallied 23% in a year’s time.

CECO has a long-term earnings growth rate of 15%. The stock has surged 57% over the past year.

Flowserve has a long-term earnings growth rate of 17.3%. The stock has gained 10% over the past year.

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