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Avery Dennison Hits 52-Week High: Is Further Upside Left?

Zacks Equity Research

Shares of Avery Dennison Corporation AVY scaled a fresh 52-week high of $120.27 on Jul 3, before closing the day at $120.15. Impressive earnings performance during the March-end quarter and an encouraging 2019 outlook contributed to this rally.

Avery Dennison, a Zacks Rank #3 (Hold) stock, has a market cap of roughly $10 billion. The company has an expected long-term earnings per share growth rate of 8.30%. It outpaced the Zacks Consensus Estimate in three of the trailing four quarters, recording an average positive earnings surprise of 2.11%.

Avery Dennison’s shares have gained 21.3% over the past year, significantly outperforming the industry’s growth of 11.6%.

Let’s delve deeper and analyze the factors responsible for the stock’s upsurge.

Driving Factors

Avery Dennison’s first-quarter 2019 adjusted earnings per share (EPS) of $1.48 surpassed the Zacks Consensus Estimate of $1.46 and increased around 2.7% year over year. The company continues to deliver stellar top-line growth, margin expansion and EPS improvement. This is backed by acquisitions, organic growth and a strong presence in emerging markets. In sync with this, the company maintained its adjusted EPS guidance of $6.45-6.70 for 2019, reflecting growth of 6-11% over the $6.06 earned in 2018.
 
For the current year, including the impact of the pension-settlement charge, Avery Dennison raised its earnings per share guidance to $3.10-$3.35 from the prior view of $2.70-$2.95, due to lower-than-expected pension-settlement charges.

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. This apart, it continues to combat raw-material inflation with pricing actions.

The Label and Graphic Materials (LGM) segment is Avery Dennison’s largest and highest-return business. This segment will maintain its momentum of solid top-line growth and continued margin expansion, spurred by growth in emerging markets, focus on high-value categories (including specialty labels), as well as contributions from productivity initiatives. Furthermore, Avery Dennison’s completion of restructuring actions associated with the consolidation of its LGM segment’s European footprint will drive higher returns and boost the company’s competitiveness.
 
The company will also benefit from its fast-growing high-value product categories, such as specialty labels and Radio-frequency identification (RFID), delivering annual growth of more than 15-20%. Avery Dennison expects strong engagement among apparel retailers and brands, as well as promising early-stage developments in other end markets. Moreover, the company increases its investments to fuel growth with higher spending for business development and R&D.

Avery Dennison is confident about meeting growth and margin targets for Industrial and Healthcare Materials (IHM) segment over the long haul. It is likely to meet its target of 4-5% plus organic growth for the segment over the longer term and anticipates to witness the company’s margin gradually expand by 2021.

Positive Growth Projections

The Zacks Consensus Estimate for Avery Dennison’s 2019 EPS is currently pegged at $6.55, reflecting expected year-over-year growth of 8.09%. The same for 2020 is pinned at $7.16, indicating a year-over-year rise of 9.2%.

Avery Dennison Corporation Price and Consensus

Avery Dennison Corporation Price and Consensus

Avery Dennison Corporation price-consensus-chart | Avery Dennison Corporation Quote

Stocks to Consider

A few better-ranked stocks in the Industrial Products sector are AptarGroup, Inc. ATR, Roper Technologies, Inc. ROP and CIRCOR International, Inc. CIR, each sporting a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

AptarGroup has an estimated earnings growth rate of 8.7% for the ongoing year. The company’s shares have gained 35.7% in the past year.

Roper Technologies has an expected earnings growth rate of 9.4% for the current year. The stock has appreciated 37.5% in a year’s time.

CIRCOR International has a projected earnings growth rate of 7.6% for 2019. The stock has rallied 21.6% over the past year.

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