Sonoco Products Company ( NYSE: SON ) is presenting a solid opportunity to investors at present as portfolio simplification remains undervalued by the market, according to Citi.
Per the bank’s analyst Anthony Pettinari, near term earnings are expected to be solid, with the stock still trading at an attractive valuation. He added that macroeconomic risks are less likely to impact the stock after its defensive strategy tilt in recent years in terms of adding exposure to composite/metal cans, flexibles, uncoated recycled paperboard, and tubes/cores while divesting non-core businesses and streamlining operations.
“The portfolio shift improves management focus and increases exposure to more defensive Consumer end markets,” he explained. “While investors questioned the ~$1.35B Metalpack Food Can acquisition last year, the timing was right in our view, as these are typically the most defensive Packaging assets.”
Per the bank’s estimates, about 60% of sales for the company are now tied to consumer staples. While company management’s long-term targets were considered perhaps overly-ambitious by Pettinari, he noted the stock has not priced in any of the upside forecast by the executives. As such, he initiated the stock as a “Buy” with a $66 price target.
“We are Buy rated on SON given the company’s recent portfolio simplification initiatives, operational improvements, and increased defensive exposure,” Pettinari concluded. “We view valuation as attractive relative to Packaging peers, while investor expectations remain muted, creating an attractive setup for the stock.”
Shares of the South Carolina-based consumer packaging company gained over 1% in the early afternoon session on Friday, trading in a volatile manner throughout the day’s trading.
Read more on the company’s recent earnings outlook .
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Sonoco Products Company a compelling opportunity amid operational improvements - Citi