Sonoco, a global provider of a variety of consumer packaging products, just announced a $383 million all-cash deal for Weidenhammer Packaging Group. Weidenhammer, headquartered in Hockenheinm Germany, will strengthen the South Carolina-based Sonoco in areas like decorated convenience packaging. Not to mention, Sonoco will now have much needed growth opportunities in Europe.
Shares, at $41, are down 1.3% on the year to date; the S&P 500 is up 8% for the same period. But more gains are on the horizon. In the next 12 months, these shares should trade around $40 to $50, or 20% higher.
Weidenhammer's expertise in composite cans and composite drums will give Sonoco added capabilities in areas that would have taken years to develop on its own. Sonoco, which competes with Bemis Company (BMS) and Rock-Tenn (RKT) , now has added muscle and enough product differentiation to help expand its gross margins.
The deal, which is expected to close in the fourth quarter of 2014, should be accretive to Sonoco's 2015 base earnings. Prior to the deal, Wall Street was looking for 2015 earnings of $2.69 per share, according to Yahoo! Finance. Sonoco may now be able to produce 2015 earnings of close to 9 cents per share.
A Sonoco representative was not available for comment.
Assuming that management can extract future accretive benefits from cost synergies and operational improvements, investors should do well.
This is because aside from Sonoco's lead in areas like supply chain services and protective packaging, the company immediately becomes the global leader in rigid paper packaging. Sonoco will now be able to sell its product in emerging markets like South America and Eastern Europe.
Also, Weidenhammer's innovative capabilities should help drive Sonoco's organic growth efforts though what the company calls its i6 Innovation Process.
All told, Sonoco could not have picked off a better company that aligns perfectly with its image profile and the priorities management has already outlined.
Currently, Sonoco is just 8% away from a new 52-week high. Over the past five years, Sonoco investors have seen their wealth grow by roughly 75% and let's not forget the company's dividend yield of 3.20%, which makes Sonoco one of the best payers in its category.
In other words, one year's stock performance is not enough to assess the real value of the asset. Plus, with Weidenhammer coming on board, which should push Sonoco's annual revenue to over $5 billion ($4.85 billion in 2013), investors are guaranteed revenue growth not only for the balance of 2014, but also for all of next year.
Factoring in potential synergies, Sonoco has just bought itself a strong catalyst for future price appreciation and higher profits. All investors need to do is sit back and let management work its magic.
At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
TheStreet Ratings team rates SONOCO PRODUCTS CO as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:
"We rate SONOCO PRODUCTS CO (SON) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, increase in net income, revenue growth, largely solid financial position with reasonable debt levels by most measures and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity." You can view the full analysis from the report here: SON Ratings Report