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On Tuesday, Sonoco Products (NYSE:SON) received a positive assessment from Jefferies as the firm began its coverage on the company’s stock. Jefferies set a Buy rating and established a price target of $62.00 per share, well above the current trading price of $43.44. According to InvestingPro data, the stock currently trades at a P/E ratio of 62.6 and shows a strong free cash flow yield. The research firm’s coverage comes with the view that Sonoco is concluding a significant transformation of its portfolio, which started back in 2020.
The extensive restructuring involved major mergers and acquisitions, as well as divestitures, which according to Jefferies, have obscured the company’s true potential for margin growth and free cash flow (FCF) conversion. This has led to Sonoco’s trading multiple compressing to approximately 6.0 times on a pro forma basis, representing a roughly 27% discount compared to its peers. Notably, InvestingPro data reveals that Sonoco has maintained dividend payments for 55 consecutive years and has raised its dividend for 42 consecutive years, demonstrating remarkable financial stability through various market cycles.
Jefferies’ analysis suggests that the market has not fully recognized the value of Sonoco’s revamped portfolio. The firm’s in-depth Sum of The Parts (SOTP) analysis indicates that there’s a significant underappreciation of the company’s pro forma portfolio. Based on their findings, Jefferies sees a potential upside of approximately 43% to the stock price from its current levels. This aligns with broader analyst sentiment, as InvestingPro shows analyst targets ranging from $45 to $65 per share. Get access to 8 more exclusive InvestingPro Tips and comprehensive analysis through the Pro Research Report, available with an InvestingPro subscription.
The analyst at Jefferies highlighted the conclusion of the portfolio transformation as a key factor in the optimistic outlook for Sonoco. The changes are expected to soon reflect in the company’s financial performance, making it an attractive investment opportunity.
The initiation of coverage with a Buy rating by Jefferies could contribute to investor interest in Sonoco Products as the market processes the firm’s positive outlook and the anticipated upside potential for the stock.
In other recent news, Sonoco Products Company announced several significant developments. The company has completed the sale of its Thermoformed and Flexibles Packaging (NYSE:PKG) business to TOPPAN Holdings Inc. for approximately $1.8 billion. This move is part of Sonoco’s strategy to focus on its core sustainable metal and fiber consumer and industrial packaging businesses. The company plans to use the after-tax cash proceeds from the sale to reduce its leverage, aligning with its financial goals. Additionally, Sonoco declared an increase in its quarterly common stock dividend to $0.53 per share, marking its 100th consecutive year of dividend payments. This increase will bring the annual dividend to $2.12 per share. Furthermore, Sonoco’s shareholders approved the executive compensation plan during their recent annual meeting. In terms of governance, all nominated directors were elected to the board, and PricewaterhouseCoopers LLP was ratified as the independent registered public accounting firm for the fiscal year. These developments reflect Sonoco’s ongoing commitment to its strategic objectives and shareholder returns.
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