Analyst Turns Bullish On The 'New Sonoco'

An analyst from Baird has turned bullish on the new Sonoco Products Co SON, citing the underperformance of the company's shares year-to-date and the impending staggered catalysts on the horizon, including strategy shift, M&A, pricing catch-up and potential for industrial growth.

Analyst Ghansham Panjabi pointed out that the shares of Sonoco have considerably underperformed the S&P 500 packaging sector over the past five years.

Baird noted that the company has more cyclical end-market exposure relative to Packagers, with industrials accounting for 37 percent of sales. The business is balanced by broad-based consumer exposure across the portfolio, the firm added.

Accordingly, the firm believes the company would benefit from improving economic growth.

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Baird feels Sonoco Products would leverage its healthy balance sheet and pursue bolt-on acquisition targets. The firm noted that the company's consumer segment is focusing on fresh foods, while its protective solutions segment is leaning toward the outsized e-ecommerce market.

Baird is of the view that its 2018 earnings estimate of $3.05 per share is realistic, as 2017 headwinds abate.

"Accordingly, we believe that risk:reward is skewed favorably for Sonoco with downside limited by a healthy dividend yield (~3%) and an acceleration in economic growth/M&A summing to potential earnings power of $3.50/sh—in the context of minimal investor enthusiasm at current," the firm concluded.

As such, Baird upgraded shares of Sonoco Products from Neutral to Outperform and raised its price target from $55 to $60. Baird thinks the company is well positioned to outperform its peers over the next two years.