The Smiths: Recovery pair DS Smith and Hill & Smith

They've headed in different directions today, but these two stocks are a class act and widely followed.

Having seen their shares knocked off course in 2018, highly-regarded pair DS Smith (LSE:SMDS) and Hill & Smith (LSE:HILS) have provided more evidence that they are well placed to recover lost ground.

The confidence boost at FTSE 100-listed packaging firm DS Smith has been fuelled by today's deal to sell its plastics business for around £450 million. Current trading has also been strong after a busy Christmas for its e-commerce customers, which include Amazon (NASDAQ:AMZN).

While shares in FTSE 250 road safety barriers firm Hill & Smith were lower after today's annual results, there's renewed optimism in the City that the stock has room to add at least 15% as part of its ongoing recovery from a profits warning in August.

The shares are now up 18% since the start of November, which is welcome news for investors in our Consistent Winter Portfolio made up of Hill & Smith, Howden Joinery (LSE:HWDN), InterContinental Hotels Group (LSE:IHG), Greene King (LSE:GNK) and Croda International (LSE:CRDA).

What's interesting in terms of Hill & Smith is that its shares are still nowhere near the level of 1,470p seen prior to the profits warning, which was triggered by bad weather impacting some road projects in the UK.

Source: TradingView (*) Past performance is not a guide to future performance

Investec Securities said:

"The factors that caused the first-half downgrade have largely corrected, although Brexit uncertainties remain."

With today's full-year earnings per share (EPS) growth of 3% to 76.5p coming in 5% ahead of Investec's forecasts, the broker has upgraded its EPS estimate for this year by 4% and raised its price target price from 1,250p to 1,370p.

This is close to Peel Hunt's target of 1,380p, which is based on a projected price/earnings (PE) multiple of 14.9x for 2019. The dividend was today increased for a 16th year in a row, with the full-year pay-out up 6% to 31.8p despite a challenging first half of the year.

Chief executive Derek Muir said the subsequent return to growth was due to the company's "leading positions in markets with clear long-term growth dynamics".

Around a third of its revenues come from road-related infrastructure, with a similar level from utilities projects as well as its galvanizing services division, which provides corrosion protection in the form of zinc and other coatings.

Highways England is adding more than 4,000 miles of extra capacity through Smart Motorways, which is creating demand for Hill & Smith’s services, including gantries to highlight changing speed limits or hazards ahead. The company's US business is also set to benefit from Donald Trump's 'Buy American' policy for federally funded infrastructure projects.

At DS Smith, shares also have a long way to go before they revisit the levels seen prior to the sector's de-rating last autumn, which was triggered by higher pulp and paper costs and fears over consumer confidence.

DS Smith lost a quarter of its value in a month, while it also found itself the target of Odey Asset Management after the hedge fund took a reported £30 million bet against the stock.

Source: TradingView (*) Past performance is not a guide to future performance

There's been a pretty good fight back since then, with success in the recovery of increased input costs and resilience among customers in fast-moving consumer goods.

It said today that group margins were expected to progress further in the second half of its financial year, with operating cashflow generation stronger than a year ago.

The company, which offers a dividend yield of around 4%, has also been playing its part in industry consolidation in recent months with the purchase of Spain's Europac for around £1.5 billion. It struck another deal today with the plastics sale to Olympus Partners. The disposal is in line with its medium-term target of a net debt/earnings ratio at or below 2x.