SONOCO PRODUCTS COMPANY
NYSE : SON
Sector: Basic Materials
Industry: Paper & Paper Products
Function:
Sonoco Products Company, incorporated in 1899, is a manufacturer of industrial and
consumer packaging products and provider of packaging services. Sonoco has
approximately 300 locations in 32 countries and serves customers in 85 nations. The
Company's operations consist of two business segments, industrial and consumer
packaging. The Industrial Packaging segment represented approximately 50% of the
Company's sales in 2002, and includes paper, plastic and composite engineered
carriers; paperboard; wooden, metal and composite reels for wire and cable packaging;
fiber-based construction tubes and forms; custom-designed protective packaging, and
supply chain management capabilities. The Consumer Packaging segment represented
approximately 50% of the Company's sales in 2002, and includes round and shaped
rigid packaging, both composite and plastic; printed flexible packaging; metal and
plastic ends and closures; high-density film products; specialty packaging, and
packaging services.
The principal raw materials used by the Company are recovered paper, paperboard,
metal and plastic resins. Recovered paper used in the manufacture of paperboard is
purchased either directly from suppliers near manufacturing operations or through the
Company's subsidiary, Paper Stock Dealers, Inc.
Sonoco manufactures high-value tubes, cores, and cones, and provides packaging
materials and services used by a variety of the world's industries in their winding and
converting processes. For the 6 months ended 6/29/03, revenues increased 2% to
$1.43B. Net income fell 27% to $51.8M. Revenues reflect higher average selling
prices and favorable exchange rates. Earnings were offset by higher restructuring
expenses.
Sonoco Products Company is rank 13 at the industry average, with 20,028,882 of
market capitalization, $2,729,885 of TTM sales, and 17,400 of total employees.
Fundamental Analysis:
A-Valuation
Company Industry Sector Market Comparison
DDM 1.4694
P<V Under Value With Stock Price $22.52
P/E
18.85
17.41
27.28
24.79
PEG
9.06
8.70
2.24
2.18
PSR
0.77
1.1
1.61
3.43
P/B
2.34
2.7
3.13
4.28
Beta
1.05
0.76
0.85
1
Dividend yield is 3.95%
PEco>PEind
Sonoco product’s P/E Ratio is higher than
the industry indicating that the company is
overvalued. With comparison to the sector
and market, Sonoco product is undervalued.
PEGco>PEGind
Sonoco product’s PEG Ratio is higher than
the industry indicating that the company is
overvalued. With comparison to sector and
market, Sonoco product is also higher.
PSR<3, PSR<1
Sonoco product’s PSR is less than 3 and also
less than 1, therefore the company is
undervalued. Sonoco product’s PSR also
lower than the industry, sector, and the
market.
P/B>1 Which indicates that the company is
Overvalued, but it is lower than the industry,
sector, and the market.
Betaco>1 Which indicates that the company
is slightly higher than the market, which
indicates that the company is not risky at all.
However, it is also slightly higher than the
industry and the sector.
Conclusion of Valuations:
Comparison of the P/E, PEG, and P/B indicate that Sonoco product is
relatively overvalued compared to the industry, sector, and the market. Since Book
Value 2.34 and DDM 1.4694 indicate SON stock price $22.52 and dividend yield at
3.95% are heavily overprice. However, only PSR 0.77 shows the company is
undervalued. Base on earning, the subject company since to be overvalued. However,
subject Company’s P/B ratio 2.34 is relatively lower than the industry 4.28.
Financial Analysis:
1.
Liquidity
Financial
Ratio
a. Current
Ratio
(MRQ)
Company
b. Quick
Ratio
(MRQ)
Industry
Sector
Market
1.30
1.35
1.88
1.80
0.74
0.67
1.10
1.28
Comparison
The current ratio of Sonoco
products is slightly lower than the
industry and not as high as the
sector and market. This indicates
that Sonoco product is not as liquid
as the industry, sector and the
market.
The quick ratio of Sonoco product
is higher than industry and lower
than the sector and market. This
indicates that the Sonoco product
is as liquid as the industry and not
as liquid the sector and the market.
Liquidity
1.59
1.6
1.4
1.35
1.45 1.35
1.35
1.2
1.11
1
0.8
0.6
0.4
0.2
Industry Average
0
2000
a. Current Ratio (MRQ)
2001
2002
a. Current Ratio (MRQ)
Industry Average
As the trend shows the past 3 years are going on a downward motion. Sonoco
products company might have a little problem to get short term loan.
Liquidity
1.59
1.6
1.45
1.4
1.2
1.11
1
0.67
0.8
0.67
0.67
0.6
0.4
0.2
Industry Average
0
2000
b. Quick Ratio (MRQ)
2001
2002
b. Quick Ratio (MRQ)
Industry Average
All 3 years are above industry average, but it is also in a downward motion. Sonoco
products company needs to be very careful on this.
2
Profitability
Financial
Ratio
a.
Operating
Margin
(TTM)
Company
Industry
Sector
Market
7.89
7.80
8.72
18.03
3.82
4.33
5.14
11.75
b. Net
Profit
Margin
(TTM)
Comparison
The Operating margin is
slightly lower than the industry,
sector and significantly lower
than the market. This indicates
that the Sonoco product’s
earning ability is lower than
industry, sector, and
significantly lower than market.
The Net Profit Margin of
Sonoco product is lower than
the industry, sector, and
significantly lower than the
market. This indicates that the
Sonoco product’s earning
ability is lower than the
industry, sector, and
significantly lower than market.
Profitability
14.00
12.00
12.04
10.00
7.80
7.80
8.60
8.00
8.93
7.80
6.00
4.00
2.00
Industry Average
0.00
2000
a. Operating Margin (TTM)
2001
2002
a. Operating Margin (TTM)
Industry Average
All 3 years are above industry average. There is slightly off at year 2001 but Sonoco
came back up on years 2002.
Profitability
14.00
12.00
12.04
10.00
8.60
8.00
4.33
6.00
8.93
4.33
4.33
4.00
2.00
Industry Average
0.00
2000
b. Net Profit Margin (TTM)
2001
2002
b. Net Profit Margin (TTM)
Industry Average
All 3 years are above industry average. Sonoco has good control on the costs of debt.
3 Management
Effectiveness:
Financial
Ratio
a. Return on
Investment
(TTM)
Company
Industry
Sector
Market
5.69
5.20
4.55
9.40
13.07
10.31
10.63
17.45
b. Return on
Equity
(TTM)
Comparison
The return on
investment of Sonoco
product is higher than
the industry and sector
and is significantly
lower than the market.
This indicates that
Sonoco product is
competitive than the
industry and sector, but
not as competitive as
the market.
The return on equity of
Sonoco product is
higher than industry
and sector and lower
than the market. This
indicates that Sonoco
has high leverage than
the industry, sector and
the market.
Management Effectiveness
8.00
7.52
7.00
5.20
6.00
5.20
5.66
5.00
4.00
5.20
3.89
3.00
2.00
1.00
Industry Average
0.00
2000
ROI
2001
2002
ROI
Industry Average
Sonoco products company was not doing well on year 2001 but they came back on
year 2002.
Management Effectiveness
12.00
10.31
10.31
10.31
10.00
8.00
7.52
6.00
5.66
4.00
3.89
2.00
Industry Average
0.00
2000
ROE
2001
2002
ROE
Industry Average
All 3 years are significant below industry. average. Manager should reexamine the use
of the debt.
4.
Efficiency
Ratio
Financial
Ratio
a.
Receivable
Turnover
Company
Industry
Sector
Market
7.18
8.42
11.01
10.10
8.62
6.66
6.18
9.99
b.
Inventory
Turnover
Comparison
The receivable turnover of
Sonoco product is lower than
industry, sector, and market.
This indicates that Sonoco
product collects its receivables
faster than industry, sector, and
market.
The inventory turnover of
Sonoco product is higher than
the industry and sector and
lower than the market. This
indicates that Sonoco product
has good inventory control than
industry and sector, but not as
good as the market.
Efficiency Ratio
9.20
9.00
9.01
8.94
8.80
8.42
8.60
8.42
8.42
8.40
8.23
8.20
8.00
Industry Average
7.80
2000
a. Receivable Turnover
2001
a. Receivable Turnover
Industry2002
Average
Sonoco’s receivable turnover has increase significantly on year 2001 and well above
industry average.
Efficiency Ratio
12.00
10.00
11.50
10.13
9.96
6.66
8.00
6.66
6.66
6.00
4.00
2.00
Industry Average
0.00
2000
b. Inventory Turnover
2001
b. Inventory Turnover
Industry2002
Average
Sonoco’s inventory turnover is above industry average for all 3 years.
5.
Growth
Rate
Financial
Ratio
a. 5 years
Growth
of Sales
Company Industry Sector Market Comparison
-0.25
5.10
5.13
9.74
-6.73
6.90
1.21
10.42
b. 5 years
Growth
of EPS
The sales growth of the
Sonoco product is
significant lower than the
industry, sector, and the
market. Sonoco product
has negative number on
growth of sales. This
indicates that Sonoco
product is not making sales
compare to industry,
sector, and the market.
The EPS growth of the
Sonoco product is
significant lower than
industry, sector, and
market. Sonoco product
has negative number on the
growth of EPS. This
indicates that Sonoco
product earning is not
Financial
Ratio
a. Total
Debt/Equity
6.
Debt
Ratio
Company
Industry
Sector
Market
0.85
1.41
1.11
0.95
3.42
7.33
5.62
12.97
b. Interest
Coverage
Ratio
Comparison
The debt/equity ratio of Sonoco
product is lower than the industry,
sector, and market. This indicates
that Sonoco product is as leveraged
as the industry, sector, and market.
The interest coverage ratio of
Sonoco product is lower than the
industry, sector, and the market.
This indicates that Sonoco product
can not meet its fixed obligations
than the industry, sector, and the
market.
Debt Ratio
1.6
1.41
1.41
1.41
1.4
1.2
1.15
1.07
1
0.96
0.8
0.6
0.4
0.2
Industry Average
0
2000
a. Total Debt/Equity
2001
2002
a. Total Debt/Equity
Industry Average
All 3 years debt ratio is below industry average. Sonoco has good control on the debt
issue.
Debt Ratio
7.33
8
7.33
7.33
7
6
5.48
5
4.3
4
4.63
3
2
1
Industry Average
0
2000
b. Interest Coverage Ratio
2001
2002
b. Interest Coverage Ratio
Industry Average
All 3 year’s interest coverage is significantly lower than industry. This indicates that
Sonoco products might have problem borrowing money.
Conclusion of Financial Strength:
Sonoco Products Company has high levels of profitability efficiency; however
low interest coverage ratio might indicate the subject company is pinch for cash
causing reasonable doubt in managing working capital. Even Sonoco products
company proves to be competitive within its industry and sector coming close to
industry and sector average in several areas, but compare to the past 3 years, the
company’s ratio are all dropping every years. Sonoco Products Company needs to
increase the sales. Even though the industry’s growth is 5.10% but the company’s
negative 0.25% on growth indicated negative outlook for Sonoco’s future. Sonoco
Products Company is not the top rank in the market. In the time of recession, price
war will play a critical role in highly competitive industry. Sonoco’s position in the
industry makes higher growth rate difficult goal to achieve.
Technical Analysis:
1. Simple Moving Average:
A Moving Average is an indicator that shows the average value of a security's
price over a period of time. When calculating a moving average, a mathematical
analysis of the security's average value over a predetermined time period is made. As
the security's price changes, its average price moves up or down.
There are five popular types of moving averages: simple (also referred to as
arithmetic), exponential, triangular, variable, and weighted. Moving averages can be
calculated on any data series including a security's open, high, low, close, volume, or
another indicator. A moving average of another moving average is also common.
The only significant difference between the various types of moving averages
is the weight assigned to the most recent data. Simple moving averages apply equal
weight to the prices. Exponential and weighted averages apply more weight to recent
prices. Triangular averages apply more weight to prices in the middle of the time
period. And variable moving averages change the weighting based on the volatility of
prices.
The most popular method of interpreting a moving average is to compare the
relationship between a moving average of the security's price with the security's price
itself. A buy signal is generated when the security's price rises above its moving
average and a sell signal is generated when the security's price falls below its moving
average.
Figure 1: Sonoco compared to Simple Moving Average
1year price chart
Interpretation:
Since the closing price of Sonoco Products Company move above the simple
moving average, this indication to BUY at this time.
Figure 2: Sonoco compared to S&P500
_1year price chart
Interpretation:
Since the closing price of Sonoco Products Company move above the simple
moving average. However, recent performance indicates the S&P 500 is in a upward
motion. This indication to BUY within the market and HOLD the Sonoco stock.
Figure 3: Sonoco compare to Kimberly-Clark Corp.
1year price chart
Interpretation:
Since the closing price of Sonoco Products Company move above the simple
moving average. However, recent performance indicates the KMB is in a upward
motion. This indication to BUY within the market and HOLD the Sonoco stock.
2. Relative Strength Index:
The Relative Strength Index ("RSI") is a popular oscillator. The name
"Relative Strength Index" is slightly misleading as the RSI does not compare the
relative strength of two securities, but rather the internal strength of a single security.
The RSI is a price-following oscillator that ranges between 0 and 100. A popular
method of analyzing the RSI is to look for a divergence in which the security is
making a new high, but the RSI is failing to surpass its previous high. This divergence
is an indication of an impending reversal. When the RSI then turns down and falls
below its most recent trough, it is said to have completed a "failure swing." The
failure swing is considered a confirmation of the impending reversal. Movements
above 70 are considered overbought, while an oversold condition would be a move
under 30.
Figure 1: Sonoco compared to RSI
_1year price chart
Interpretation:
Sonoco’s level of relative strength is about 45, falls in between 30-70. the RSI
is not in the new high and it’s not falls below recent trough, This indicates that the
stock is not over or under bought. This would be an opportune time to HOLD.
Figure 2: Sonoco compared to S&P500
1year price chart
Interpretation:
Sonoco has a history of following the trend of the Market. However, the trend
of the market is taking an upward turn, but the Sonoco is taking an opposite turn. This
verifies that it is not a good time to buy.
Figure 3: Sonoco compare to Kimberly-Clark Corp.
_1year price chart
Interpretation:
Trend of the Market and the KMB is taking the same upward direction.
However, Sonoco is not. This indicates that it is not a good time to buy.
3. Bollinger Bands:
Bollinger Bands are similar to moving average envelopes. The difference
between Bollinger Bands and envelopes is envelopes are plotted at a fixed percentage
above and below a moving average, whereas Bollinger Bands are plotted at standard
deviation levels above and below a moving average. Since standard deviation is a
measure of volatility, the bands are self-adjusting: widening during volatile markets
and contracting during calmer periods.
Bollinger Bands are usually displayed on top of security prices, but they can
be displayed on an indicator. These comments refer to bands displayed on prices. As
with moving average envelopes, the basic interpretation of Bollinger Bands is that
prices tend to stay within the upper- and lower-band. The distinctive characteristic of
Bollinger Bands is that the spacing between the bands varies based on the volatility of
the prices. During periods of extreme price changes (i.e., high volatility), the bands
widen to become more forgiving. During periods of stagnant pricing (i.e., low
volatility), the bands narrow to contain prices.
Figure 1: Sonoco compared to Bollinger
1year price chart
Interpretation:
Sonoco currently falls within the Bollinger Band. This indicates that the stock
is neither positively or negatively extended. Since the Bollinger Band widths are not
very wide, this indicates that there is not much volatility in the price of the stock.
However, since Sonoco falls within the Bollinger Band, this indicates a time to
HOLD the stock since there is great potential for price growth.
Figure 2: Sonoco compared to S&P500
1year price chart
Interpretation:
The S&P500 and Sonoco seem to have a close historical trend. However,
recent performance indicates that the Sonoco is in a downward motion and it’s an
opposite direction compare to the market. This indicates that it is an opportune time to
BUY within the market and HOLD the Sonoco stock.
Figure 3: Sonoco compare to Kimberly-Clark Corp.
1year price chart
Interpretation:
Sonoco currently falls within the Bollinger Band. However, recent
performance compare to the KMB is falling. This indicates that it is not the right time
to buy. It should be HOLD the Sonoco stock.
4. Volume Analysis:
The Cumulative Volume Index ("CVI") is a market momentum indicator that
shows whether money is flowing into or out of the stock market. It is calculated by
subtracting the volume of declining stocks from the volume of advancing stocks, and
then adding this value to a running total.
The CVI and OBV (On Balance Volume) are quite similar. Many computer
programs and investors incorrectly call the OBV the CVI. OBV, like the CVI, was
designed to show if volume is flowing into or out of the market. But, because upvolume and down-volume are not available for individual stocks, OBV assumes that
all volume is up-volume when the stock closes higher and that all volume is downvolume when the stock closes lower. The CVI does not have to make this large
assumption, because it can use the actual up- and down-volume for the New York
Stock Exchange.
One useful method of interpreting the CVI is to look at its overall trend. The
CVI shows whether there has been more up-volume or down-volume and how long
the current volume trend has been in place. Also, look for divergences that develop
between the CVI and a market index. For example, is the market index making a new
high while the CVI fails to reach new highs? If so, it is probable that the market will
correct to confirm the underlying story told by the CVI.
Figure 1: Sonoco compared to Volume
_1year price chart
Interpretation:
The volume index of Sonoco is rising. This indicates that the numbers of the
investors of the stock are increasing. This verifies that it is not an opportune time to
buy.
Figure 2: Sonoco compared to S&P500
_1year price chart
Interpretation:
The volume index of Sonoco is rising in relation to the market. This indicates
that the number of investors of the stock is increasing. This verifies that it is not an
opportune time to buy at this time.
Figure 3: Sonoco compare to Kimberly-Clark Corp.
_1year price chart
_1year price chart
Interpretation:
The volume trend of the market and KMB are rising. This indicates that more
investor and verified that this is not a good time to buy.
Conclusion of the Technical Analysis:
Sonoco is not at the best point to purchase at this time. The technical analysis
demonstrates the growth popularity of the stock. This indicates that it is a better time
to HOLD the stock at this point.
Leading Economic Indicated Analysis:
1. Gross Domestic Product (% change)
8
7.2
7
6
5
5
4
4
3.3
3
2
1.4
1.4
1.3
1
0
1st Qtr
2nd Qtr
3rd Qtr
2002
4th Qtr
2003
Interpretation:
As the barometer of the nation's total output of goods and services, GDP is the
broadest of the nation's economic measures. Despite a raft of problems in Asia, Russia
and Latin America last year, the U.S. economy managed to post strong growth. This
year may not be as kind. Consensus estimates are for growth of 2.3%.
2. JOB GROWTH (in thousands)
200
158
123
100
75
63
0
6
-5
J
41
4
F
M
A
-21
-22
22
-14
M
J
-76
-100
-121
J
-83
-57
-63
A -41
-79
S
O
N
D
-81
-84
-121
-147
-151
-200
69
57
54
34
-197
-211
-218
-300
-327
-400
-405
-500
2001
2002
2003
Interpretation:
A key to understanding consumer sentiment is job growth. Consumers feel
more at ease when the job market is expanding. But when job growth contracts to
100,000 or less month to month, watch out the economy could be headed for a
slowdown. Currently, this indicator bodes well for the economy.
3. CONSUMER CONFIDENCE
130
120
118.9
116.9
115.7
116.3
116.1
114
110.7
109.2
110
110.3
109.9
109.8
108.5
106.3
100
97.8
97.4
97
94.5
94.6
93.7
90
83.6
85.3
83.5
81.7
81
80
78.8
84.9
81.1
79.6
77
80.7
77
70
64.8
61.4
60
J
F
M
A
M
2001
J
J
2002
A
S
O
N
D
2003
Interpretation:
The Conference Board maintains this index of consumer sentiment based on
monthly interviews with 5,000 households. After hitting historical highs last summer,
the index has been falling.
4. EARNING GROWTH RATE
25
21.8
20
15.8
15
11.7
10
9.5
10
6.8
5
1.4
0
-5
-10
-6.1
-11.5
-15
-17
-20
-25
-21.5
-21.6
1Q
2Q
2001
3Q
2002
4Q
2003
Interpretation:
Historically, earnings have been a key factor in determining share prices.
Lately, the correlation has been less pronounced, but the numbers still give investors a
sense of the economy's strength.
5. Institute for Supply Management
60
55
53.9
50
56.2
55.7
55.6
54.7
53.7
50.5
49.9
55.2
54.7
53.9
51.8
50.5
49.8
49.4
50.5
49.5
46.2
44.3
43.2
43.2
44.7
43.9
42.3
42
41.7
48.1
46.2
45.4
45
49.2
48.5
47.9
40
39.5
35
30
J
F
M
A
M
2001
J
J
2002
A
S
O
N
D
2003
Interpretation:
The ISM's index is viewed as a solid measurement of whether the
manufacturing economy is contracting or expanding. Each month, more than 400
companies provide the ISM with data on changes in production, new orders, new
export orders, imports, employment, inventories, prices, lead times and the timeliness
of supplier deliveries. By compiling the responses, the ISM is able to piece together a
national economic picture. An index reading above 50% indicates the manufacturing
economy is generally expanding; a reading below 50% means it's contracting.
Conclusion of Leading Economic Indicated Analysis:
All the indicated analysis shows the growth in every way. This indicates that
the economic for this year is growth strong and it will continue to next year.
Industry Analysis:
Industries: November 4
10 Best Performing Industries
% Change
One Month
Industry
Silver
17.1%
Long-Term Care Facilities
13.4%
Building Materials Wholesale
12.6%
Office Supplies
12.4%
Hospitals
11.6%
Packaging & Containers
10.7%
Semiconductor - Specialized
10.3%
Recreational Goods, Other
10.2%
Semiconductor Equipment & Materials
10.1%
Networking & Communication Devices
9.6%
10 Worst Performing Industries
Industry
% Change
One Month
Computer Based Systems
-13.5%
Basic Materials Wholesale
-10.6%
Music & Video Stores
-10.1%
Toy & Hobby Stores
-9.9%
Multimedia & Graphics Software
-9.1%
Internet Software & Services
-8.5%
Mortgage Investment
-7.4%
Medical Laboratories & Research
-6.2%
Regional Airlines
-6.0%
Asset Management
-5.8%
Conclusion for Industry Analysis:
Sonoco Products Company is under Paper & Paper Products industry. It is not
fall in between top 10 best or worst performing industries. This indicates that the
paper industry is under mid-cap stock..
Recommendation:
Sonoco Products Company has HOLD recommendation as of November 4,
2003. The technical analysis indicates that it is good time to HOLD the stock. Even
thought the whole economic is growing but Sonoco did not catch the trend. Past three
months’ recommendations were all HOLD. According to the Zacks average
brokerage recommendation is Hold.