Sonoco Products Company (SON), Ball Corporation (BLL): Wednesday’s Top Upgrades (and Downgrades)

This series, brought to you by Yahoo! Finance, looks at which upgrades and downgrades make sense, and which ones investors should act on. Today, our headlines feature a downgrade for Sonoco Products Company (NYSE:SON), an upgrade for Ball Corporation (NYSE:BLL), and for Electronic Arts Inc. (NASDAQ:EA) — a higher price target. Let’s dive right in.

Opening up the box
First up: Sonoco Products Company (NYSE:SON). Not to be confused with Sunoco, the oil refiner owned by Energy Transfer Partners LP (NYSE:ETP), Sonoco Products Company (NYSE:SON) is actually a maker of cardboard boxes — and paperboard, fiber trays, and all sorts of other paper-based containers and forms. The company just got hit by a downgrade to neutral at analyst house RW Baird. Curiously, however, at the same time as it was downgrading the stock, Baird was upping its price target on the stock, to $37 a share.

Why?

Basically, the answer is that Sonoco shares have bounced up higher than expected, faster than expected. Over the past six months, Sonoco shares have climbed 18% to pass Baird’s old $35 price target linked to an outperform rating. So having met its goal already, Baird is declaring mission accomplished, and pulling its buy rating. That said, modestly bullish news out of FedEx Corporation (NYSE:FDX) this morning — a big transporter of boxes — suggests there could be some upside left to Sonoco stock, and this explains why Baird might have decided to tweak its new price target upwards a skosh.

But only a skosh. Remember that at 18 times earnings, and with only a 6% annualized growth rate in profits over the next five years, analysts still aren’t expecting to see huge improvement in Sonoco’s earnings in the near term. (Indeed, even 6% would be a big improvement. The best Sonoco has managed to achieve over the past five years is an average of 2.3% growth.)

Numbers like these suggest to me that Baird is right to be cautious, and pull its buy rating. At the same time, Sonoco’s 3.5% dividend is better than the market average, and might make the stock worth holding onto despite the overvaluation.

Get on the Ball
On the other hand, one stock Baird thinks might not be overvalued is aerospace star Ball Corporation (NYSE:BLL). Baird noted in an upgrade (to outperform) this morning that Ball Corporation (NYSE:BLL) has basically been left out of the aerospace rally of late. Over the past year, Ball’s shares are up only 2%, against a rise of 22% in the S&P 500. In contrast, shares of The Boeing Company (NYSE:BA) have doubled the S&P’s rise.