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Here's Why Avery Dennison (AVY) is an Attractive Bet Now

Avery Dennison Corporation AVY looks attractive at the moment, aided by forecast-topping first-quarter 2022 results. The company is benefiting from strong demand for labeling technology for consumer-packaged goods. Solid growth in intelligent labels, driven by strong apparel label business and strength in high-value product categories and Radio-frequency identification (RFID) will drive growth. Apart from this, expected benefits from pricing and re-engineering actions to mitigate inflationary cost pressure continue to support margins. These factors position the company as a promising investment option.

Factors Detailing

Earnings & Sales surpass Q1 Estimates: Avery Dennison reported first-quarter adjusted earnings of $2.40 per share, beating the Zacks Consensus Estimate of $2.18. Revenues of $2,349 million also outpaced the Consensus Estimate of $2,299 million. The top line increased 12.7% year over year while the bottom line came in line with the year-ago quarter’s levels.

Positive Earnings Surprise History: Avery Dennison, a Zacks Rank #2 (Buy) stock, has a trailing four-quarter earnings surprise of 5.31%, on average.

Positive Growth Expectations: The company’s earnings estimate for the current year is pegged at $9.71, suggesting year-over-year growth around 9%.

Upward Estimate Revision: Current year figures are looking promising, with three estimates moving higher in the past one month compared to no downward revisions. Earnings estimates for 2022 have gone up 1.15% in the past 30 days.

Upbeat View: In the first-quarter earnings call, Avery Dennison raised financial guidance for the current year. Adjusted EPS for 2022 is now expected in the band of $9.45-$9.85, up from the prior guidance of $9.35-$9.75. The company reported an adjusted EPS of $8.91 in 2021. It expects organic sales growth of 15%-17%, driven by higher volume and the impact of higher prices.

Strong Financials: Avery Dennison’s balance sheet remains strong and has ample capacity to continue funding acquisitions, executing a disciplined capital-allocation strategy, investing in organic growth and returning cash to shareholders. In the first quarter of 2022, the company deployed $33 million for acquisitions and returned $208 million in cash to shareholders through share repurchases and dividends. Its balance sheet remains strong, with net debt to adjusted EBITDA ratio at 2.3 as of the end of the first quarter, meeting the lower end of its long-term target of 2.3-2.6.

Growth Drivers

Labeling of non-durable consumer goods, like food, beverage, home and personal care products, accounts for around 40% of Avery Dennison’s revenues. The company is witnessing soaring demand for these products amid the pandemic. Over the long run, increasing demand from emerging markets on the back of the rising middle class and the consequent surge in demand for packaged goods and a shift in the labeling technology to pressure-sensitive materials will fuel the company’s growth. Apart from these factors, around 15% of its revenues is tied to logistics and shipping, which will be aided by a rise in e-commerce activities.

Strong demand for consumer-packaged goods and e-commerce trends drive the Label and Graphic Materials segment. In the current year, the segment is well poised to benefit from solid top-line growth and margin expansion, volume improvement, focus on growing high-value categories led by specialty labels and contributions from productivity initiatives.

Avery Dennison’s Retail Branding and Information Solutions (RBIS) segment is gaining from solid margin expansions, driven by strength in high-value categories and the base business. The segment is witnessing strong volume growth in Intelligent Labels, RFID and the core apparel label business, with particular strength and performance in premium channels andcontinued double-digit growth in external embellishments.

The segment’s Intelligent Labels business continues to expect long-term annual growth of 15-20%, with solid growth in the apparel business. Apart from apparel, the RBIS segment is recording growth in new applications within food, logistics and home goods. The company is also investing in digital capabilities and solutions. Strong demand for healthcare categories is aiding the company’s Industrial and Healthcare Materials segment.

Avery Dennison has undertaken several pricing and re-engineering actions to mitigate inflationary cost pressure. The company has also announced additional price increases in most of its businesses worldwide. These factors will support the company’s margins.

Avery Dennison Corporation Price and Consensus

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

Some other top-ranked stocks in the Industrial Products sector are Packaging Corporation of America PKG, Graphic Packaging Holding Company GPK and Alcoa AA. While PKG and GPK flaunt a Zacks Rank #1 (Strong Buy), AA carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Packaging Corporation has an expected earnings growth rate of 16.2% for 2022. The Zacks Consensus Estimate for the current year’s earnings has moved up 4.2% in the past 60 days.

PKG has a trailing four-quarter earnings surprise of 19.6%, on average. Packaging Corporation’s shares have gained 4% in the past year.

Graphic Packaging has an estimated earnings growth rate of 86.8% for the current year. In the past 60 days, the Zacks Consensus Estimate for current-year earnings has been revised upward by 7.6%.

Graphic Packaging pulled off a trailing four-quarter earnings surprise of 7.2%, on average. The company’s shares have appreciated 14.8% in a year.

Alcoa has a projected earnings growth rate of 107% for the current year. The Zacks Consensus Estimate for 2022 earnings has moved north by 76% in the past 60 days.

Alcoa delivered a trailing four-quarter earnings surprise of 17.4%, on average. Alcoa’s shares have gained 32% in the past year.


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