SON Stock Study (8-5-24)
Posted by Mark on September 26, 2024 at 06:27 | Last modified: August 4, 2024 12:02I recently did a stock study on Sonoco Products Co. (SON) with a closing price of $51.64. The previous study is here.
M* writes:
> Over its 100-year-plus history, Sonoco Products has steadily assembled
> a diverse portfolio of industrial and consumer packaging product
> offerings such as flexible and rigid plastics, reels and spools,
> pallets, and composite cans. The company serves a variety of
> consumer and industrial end markets throughout North America. Sonoco
> has raised its dividend each year for more than 40 years.
Over the past 10 years, this medium-size company has grown sales and earnings at annualized rates of 4.2% and 8.0%, respectively. I have excluded ’21 EPS from the full analysis per the company’s 10-K:
> The full-year 2021 GAAP loss per diluted share was $(0.86)… The
> full-year 2021 GAAP loss was driven by $410.4 million after-tax
> pension settlement charges mostly related to the Company’s
> settlement of its U.S. Inactive Plan in the second quarter.
Lines are up, jagged, and somewhat parallel. Sales [EPS] declines in ’15, ’16, ’19, ’20, and ’23 [’17, ’19, and ’20]. Five- and 10-year EPS R^2 are 0.68 and 0.47, respectively, but Value Line gives an Earnings Predictability score of 95.
Over the past decade, PTPM trails peer and industry averages while ranging from 4.9% in ’20 to 9.2% in ’16 with a last-5-year mean of 7.3%. ROE also trails peer and industry averages despite increasing from 13.6% (’14) to 20.2% (’23) with a last-5-year mean of 17.7%. Debt-to-Capital is less than peer and industry averages despite trending up from 45.4% (’14) to 58.0% (’23) with a last-5-year mean of 55.8%.
Interest Coverage is 4.6 and Quick Ratio is 0.74 per M* who also rates the company “Standard” for Capital Allocation and describes its balance sheet as sound. Value Line gives an A grade for Financial Strength.
With regard to sales growth:
- YF projects YOY 1.7% contraction and 8.7% growth for ’24 and ’25, respectively (based on 6 analysts).
- Zacks projects YOY 1.2% contraction and 4.2% growth for ’24 and ’25, respectively (1).
- Value Line projects 4.6% annualized growth from ’23-’28.
- CFRA projects contraction of 1.6% YOY and 1.5% growth per year for ’24 and ’23-’25, respectively.
- M* provides a 2-year ACE of 19.6% growth/year and projects 9.5%/year for the next five years in analyst note.
My 2.0% per year forecast is below the long-term estimates.
With regard to EPS growth:
- MarketWatch projects 1.5% and 7.2% per year for ’23-’25 and ’23-’26, respectively (based on 10 analysts).
- Nasdaq.com projects 8.9% YOY for ’25 (2 analysts).
- Seeking Alpha projects 4-year annualized growth of 5.1%.
- Argus projects 5-year annualized growth of 6.0%.
- YF projects YOY 3.8% contraction and 12.6% growth for ’24 and ’25 (7) along with 5-year annualized growth of 5.1%.
- Zacks projects YOY 3.4% contraction and 16.3% growth for ’24 and ’25 (3) and 5-year annualized growth of 4.5%.
- Value Line projects 8.7% annualized growth from ’23-’28.
- CFRA projects contraction of 2.5% YOY and 4.6% growth per year for ’24 and ’23-’25 along with a 3-year CAGR of 5.0%.
- M* projects long-term annualized growth of 7.2%.
My 4.0% per year forecast is below the long-term-estimate range (mean of six: 6.1%). Initial value is 2024 Q2 EPS of $3.72/share (annualized) rather than ’23 EPS of $4.80.
My Forecast High P/E is 17.0. Over the past decade, high P/E ranges from 13.3 in ’23 to 32.1 in ’17 with a last-5-year mean of 20.3 and a last-5-year-mean average P/E of 17.3. I am near bottom of the range [only ’23 and ’22 (14.2) are less].
My Forecast Low P/E is 11.0. Over the past decade, low P/E ranges from 10.4 in ’23 to 27.1 in ’17 with a last-5-year mean of 14.3. I am forecasting toward bottom of the range [only ’23 and ’22 (10.9) are less].
My Low Stock Price Forecast (LSPF) of $40.90 is default based on initial value from above. This is 20.8% less than the previous closing price and 15.1% less than the 52-week low.
Over the past decade, Payout Ratio (PR) ranges from 40.7% in ’22 to 88.5% in ’17 with a last-5-year mean of 56.4%. I am forecasting below the range at 40.0%.
These inputs land SON in the HOLD zone with a U/D ratio of 2.4. Total Annualized Return (TAR) is 10.7%.
PAR (using Forecast Average—not High—P/E) of 7.1% is less than I seek in a medium-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.
To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 16 studies (my study and four other outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 4.0%, 5.9%, 17.5, 13.1, and 56.4%, respectively. I am lower across the board. Value Line’s projected average annual P/E of 17.0 is higher than MS (15.3) and higher than mine (14.0).
MS high / low EPS are $5.58/ $3.96 versus my $4.53 / $3.72 (per share). My high EPS is less due to a lower growth rate. Value Line soars above both with its $7.30 projection.
MS LSPF of $45.00 implies Forecast Low P/E of 11.4: less than the 13.1 mentioned above. MS LSPF is 13.3% less than default $3.96/share * 13.1 = $51.88 (INVALID on today’s date) resulting in more conservative zoning. MS LSPF is 10.0% greater than mine, however.
With regard to valuation, PEG is 2.3 and 3.3 per Zacks and my projected P/E, respectively: somewhat overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is a bit low at 0.8.
MOS is robust because my inputs (and most-recent-quarter initial value) are near or below respective analyst/historical ranges. MS sample is too small for meaningful comparison, but anecdotally its 16.8% TAR is 6.1%/year greater than mine.
Per U/D, SON is a BUY under $48. BI TAR criterion is met at $38.50/share given a forecast high price of $77.
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