BofA Steps To Sidelines On Sonoco, Looks For Results In 2022

Global packaging solutions company Sonoco Products Co (NYSE: SON) stands to benefit from near-term catalysts in 2021, but it's hard to justify buying the stock at today's levels, according to BofA Securities.

The Sonoco Products Analyst: George Staphos downgraded Sonoco from Buy to Neutral with a price target lowered from $61 to $57.

The Sonoco Products Thesis: Sonoco's recent price increase efforts and direct exposure to COVID-19 vaccination shipments are "some things to look forward to" in 2020 and 2021, Staphos said in the Friday downgrade note.

Yet the stock's rebound from around $40 per share in mid-March to the mid-$50s implies there are cheaper stocks available with similar catalysts, the analyst said. 

Sonoco deserves credit for doing well on productivity, but the paper and industrial converted products business is unlikely to show positive earnings comps until the second quarter of 2021, he said.

Related Link: Sonoco Products: Q3 Earnings Insights

Sonoco's sale of its European contract packaging will reduce EPS by 10 cents to 15 cents for 2021 at a time when capex will increase by $100 million and pension funding will come in at $150 million, Staphos said.

Free cash flow for 2021 is likely to come in below $50 million, but there are reasons to be positive in 2022, the analyst said.

Most notably, management is heavily investing in transforming its Hartsville #10 corrugating medium machine to become North America's largest and lowest-cost uncoated recycled board machine in 2022, according to BofA.

SON Price Action: Shares of Sonoco were trading down 0.86% at $53.03 at last check Friday.