Don't Be Fooled by the Strong Start to 2020; Sonoco's Margins Will Fade in the Second Quarter

Sonoco managed a strong first quarter despite facing the early signs of COVID-19-related lockdown conditions around the world. Adjusted EPS rose more than 10% from the prior year to $0.94 per share, due to a combination of impressive cost reductions and lower input costs in some segments. The company has unsurprisingly suspended its earnings guidance for 2020, given the unpredictability that comes with the COVID-19 outbreak. After updating our near-term outbreak to better reflect pandemic conditions, our fair value estimate falls to $41 per share, down from $42. Our no-moat rating is unchanged. With much of Sonoco's business catering to food and grocery end-markets, we think the company is well positioned to make it through a challenging 2020.