On Monday, Sonoco Products (NYSE:SON) received a reaffirmed Buy rating and $64.00 price target from Citi, following the packaging company's announcement of its acquisition of Eviosys, a top food can producer in Europe.
The transaction is valued at approximately $3.9 billion, which is 9.1 times Eviosys' earnings before interest, taxes, depreciation, and amortization (EBITDA) before synergies, and 7.3 times after. The deal is expected to significantly enhance Sonoco's earnings per share (EPS) by 25% in 2025, with a return on invested capital (ROIC) exceeding the weighted average cost of capital (WACC) from the first year.
Despite the positive outlook, Citi flagged some potential concerns. Sonoco appears to be paying about 70% more for Eviosys than what the previous owner, KPS Capital Partners, paid in 2021.
Additionally, while Eviosys has boosted its EBITDA by roughly 50% since the purchase, questions remain about the sustainability of this growth. The ambitious synergy target of $100 million might also draw skepticism due to the international nature of the merger, considering Sonoco's current European sales constitute only 14% of its total revenue.
The acquisition will increase Sonoco's net leverage to approximately four times its EBITDA at the deal's closing, which could be reduced to 3.6 times with the planned divestitures, including the sale of the Thermosafe division. Market participants are looking forward to further details, which were expected to be discussed in the company's conference call at 8:30 am.
In other recent news, Sonoco has declared a minimum 6% price increase on its converted paperboard products in the United States and Canada. The company has also announced a price increase of $70 per ton for all grades of uncoated recycled paperboard. These price adjustments are attributed to the rising costs of raw materials and other inflationary pressures.
Sonoco has also announced the retirement of Jeff Tomaszewski, President of Diversified Businesses, effective June 30, 2024.
Citi analysts have adjusted the price target for Sonoco Products to $64 from $65, while maintaining a Buy rating on the stock. These are among the recent developments that reflect Sonoco's ongoing efforts to enhance value for its customers and shareholders.
InvestingPro Insights
As Sonoco Products (NYSE:SON) navigates the significant acquisition of Eviosys and aims to solidify its position in the packaging industry, investors and analysts are closely monitoring the company's financial metrics and market performance. According to InvestingPro data, Sonoco boasts a market capitalization of $5.24 billion and a robust price-to-earnings (P/E) ratio of 13.67, which is further refined to 12.48 when adjusted for the last twelve months as of Q1 2024. This suggests a company that is reasonably valued given its earnings.
An InvestingPro Tip highlights that Sonoco has maintained a commendable track record of dividend payments for 54 consecutive years, which is indicative of its financial stability and commitment to shareholder returns. Furthermore, the company's stock exhibits low price volatility, providing a level of predictability for investors who may be concerned about market fluctuations. These attributes could be particularly appealing in the context of the recent acquisition and subsequent price increases announced by Sonoco.
Despite the challenges of integrating Eviosys and the increased net leverage, Sonoco's dividend yield stands at an attractive 3.74%, with a notable dividend growth of 6.12% over the last twelve months as of Q1 2024. This combination of steady dividend growth and a strong yield could be a compelling reason for investors to maintain confidence in the company's financial health and future prospects.
To gain further insight into Sonoco's performance and to access additional InvestingPro Tips related to the company's stock, investors can explore the comprehensive analysis available at https://www.investing.com/pro/SON. Currently, there are more InvestingPro Tips listed on the platform, offering in-depth evaluations and forecasts that can guide investment decisions. Moreover, interested users can take advantage of an exclusive offer using the coupon code PRONEWS24 to receive an additional 10% off a yearly or biyearly Pro and Pro+ subscription, providing access to invaluable market insights and data.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.