On Tuesday, Citi reaffirmed its Buy rating on Sonoco Products (NYSE:SON) with a steady price target of $64.00. The affirmation follows Sonoco's recent strategic moves, including the acquisition of Eviosys and the anticipated sale of its ThermoSafe division.
Citi's analysis indicates that while the acquisition presents significant questions, such as Sonoco's potential increase in leverage to around four times in a volatile economic climate, the sustainability of Eviosys' 50% EBITDA growth from 2021, and the complexities of the deal, their estimated target price remains unchanged.
The acquisition's complexities involve assumptions of asset sales and equity issuance. Citi's price target is based on an 8.5x next twelve months (NTM) EBITDA multiple, or an 8.0x pro forma 2025 EBITDA multiple, contingent on the completion of Eviosys' acquisition and the divestiture of ThermoSafe.
The analyst noted that the deal has not yet been finalized, which is why their estimates remain unaltered at this time. The evaluation of Sonoco's global footprint in Food Cans in the context of this deal also remains a point of consideration.
Sonoco's strategic decisions, including the potential sale of ThermoSafe and the Eviosys acquisition, are part of the company's broader efforts to reshape its business portfolio. These moves are significant as they could impact the company's financial leverage and operational complexity.
The company's stock performance and future outlook will be closely watched by investors as these transactions progress. The finalization of the deals and their subsequent integration into Sonoco's operations will be critical in determining the accuracy of Citi's maintained price target and Buy rating.
In other recent news, Sonoco Products has been making significant strides with its acquisition of Eviosys, a top food can producer in Europe. The $3.9 billion deal is expected to enhance Sonoco's earnings per share (EPS) by 25% in 2025. Citi has reaffirmed a Buy rating on Sonoco's stock, despite some concerns regarding the sustainability of Eviosys' growth and the ambitious synergy target of $100 million.
In addition, Sonoco has announced a minimum 6% price increase on its converted paperboard products in the United States and Canada, as well as a price increase of $70 per ton for all grades of uncoated recycled paperboard. These adjustments are in response to rising costs of raw materials and other inflationary pressures.
The company has also announced the upcoming retirement of Jeff Tomaszewski, President of Diversified Businesses, effective June 30, 2024. 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 through strategic acquisitions and potential sales, the latest data from InvestingPro shows a company with a solid foundation. With a market capitalization of $5.24 billion and a P/E ratio of 13.43, Sonoco appears to be valued reasonably in the market. Notably, the adjusted P/E ratio for the last twelve months as of Q1 2024 is even lower, at 12.44, hinting at a potentially undervalued stock.
InvestingPro Tips underscore the company's stability and potential for investors. Sonoco has not only raised its dividend for 41 consecutive years but has also maintained dividend payments for 54 consecutive years, signaling a commitment to shareholder returns. Moreover, the stock's low price volatility could appeal to investors seeking a stable investment during uncertain economic times. These factors, combined with a strong free cash flow yield as implied by the valuation, present a compelling case for the company's financial health.
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