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Avery Dennison Gains 10% in 3 Months: Will Growth Continue?

Zacks Equity Research

Shares of Avery Dennison Corporation AVY have gained 10% year in the past three months, spurred by impressive earnings performance in the first two quarters and an encouraging 2019 outlook. Expected benefits from pricing actions, restructuring activities, acquisitions and strong presence in emerging markets also aided the stock rally.
     
The company currently has a Zacks Rank #2 (Buy) and a VGM Score of A. Our research shows that stocks with a VGM Score of A or B combined with a Zacks Rank #1 (Strong Buy) or 2, offer the best investment opportunities.

Avery Dennison has a market cap of roughly $9.3 billion. The stock has a long-term expected earnings per share growth rate of 8.25%. The company’s shares have returned 9.8% year-to-date against the industry’s decline of 0.4%.



Let’s delve deeper and analyze the reasons behind the company’s impressive price performance and find out if there is room for further appreciation:

Upbeat Results: Avery Dennison’s adjusted earnings per share in the first quarter and second quarter of 2019 improved 4% and 3%, respectively. The company beat the Zacks Consensus Estimate in both the quarters. Notably, the company outpaced the Zacks Consensus Estimate in three of the trailing four quarters, with an average positive earnings surprise of 1.10%.
 
Strong Outlook: For 2019, Avery Dennison’s adjusted earnings per share guidance is pegged at $6.50-6.65, suggesting growth of 6-11% over 2018. Including the impact of the pension-settlement charge, Avery Dennison’s earnings per share guidance is at $3.15-$3.30.

Healthy Growth Projections: The Zacks Consensus Estimate for Avery Dennison’s 2019 earnings is currently pegged at $6.57, suggesting year-over-year growth of 8.42%. The same for 2020 stands at $7.18, indicating year-over-year improvement of 9.19%.

Growth Drivers in Place:  Avery Dennison continues to deliver strong top-line growth, margin expansion and double-digit adjusted EPS improvement backed by acquisitions, organic growth and strong presence in emerging markets. The company continues to focus on four overarching priorities comprising driving outsized growth in high-value product categories, growing profitability in base businesses, relentlessly pursuing productivity improvement, and a disciplined capital-management approach.

The Label and Graphic Materials (LGM) segment is Avery Dennison’s largest and highest-return business. This segment will maintain top-line momentum and margin expansion, on the back of growth in emerging markets, focus on high-value categories (including specialty labels), and contributions from productivity initiatives. Furthermore, Avery Dennison’s completion of restructuring actions related to the LGM segment in a bid to strengthen European presence  will lead higher returns for the segment and in turn provide the company with a competitive edge.
 
Avery Dennison will also benefit from its fast growing high-value product categories — specialty labels and Radio-frequency identification (RFID). The company expects to witness strong engagement among apparel retailers and brands, and promising early-stage developments in other end markets. The company is increasing investments to drive growth with higher spending for business development and R&D. The Industrial and Healthcare Materials (IHM) segment will benefit from the Yongle, Finesse and Mactac acquisitions.

Other Stocks to Consider
 
Some other top-ranked stocks in the Industrial Products sector are Unifirst Corporation UNF, Albany International Corporation AIN and Cintas Corporation CTAS. While Unifirst and Albany International flaunt a Zacks Rank #1 (Strong Buy), and Cintas carries a Zacks Rank of 2, at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Unifirst has a projected earnings growth rate of 15.17% for the current year. The stock has gained 24% in the past three months.

Albany International has an estimated earnings growth rate of 32.3% for 2019. The company’s shares have gained 13% over the past three months.

Cintas Corporation has an expected earnings growth rate of 11.15% for the ongoing year. The stock has appreciated 16% over the past three months.

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