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Avery Dennison Corporation AVY appears a solid bet now with a plethora of positives aiding the stock. Continued focus on productivity, cost control and acquisitions along with bookings and backlog strength are primary factors driving the company. Further, Avery Dennnison’s consistent execution of strategies positions it well for profitable growth.
Let’s delve deeper and find out what are the factors that make this producer of pressure-sensitive materials, and a variety of tickets, tags, labels and other converted products, a lucrative investment option.
What’s Working in Favor of Avery Dennison?
Solid Rank & VGM Score: Avery Dennison currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The company also has a Value Growth Momentum Score (VGM Score) of B. Our research shows that stocks with a VGM Score of A or B, combined with a Zacks Rank #1 or 2, offer the best investment opportunities. Consequently, the company appears to be a compelling investment proposition at the moment.
Above the Industry: Avery Dennison’s shares have outperformed the industry with respect to price performance in the past year. The company’s shares have gained around 31%, while the industry grew 26%.
Upward Estimate Revisions: The Zacks Consensus Estimate for earnings per share for 2018 has moved up 8% to $5.88 in the last 60 days. The earnings estimate for 2019 has also gone up 8% to $6.38.
Superior Return on Assets (ROA): Avery Dennison’ ROA of 8.9%, as compared with the industry average of 7.2%, highlights the company’s efficiency in generating earnings by effectively managing assets.
Upbeat Guidance: For 2018, Avery Dennison guided adjusted earnings per share in the range of $5.70-$5.95. The mid-point of the earnings guidance range reflects year-over-year growth of 17%. The company anticipates organic sales growth of around 4% and acquisitions to have a positive impact of 1.5% on sales. Continued execution of strategies will help achieve profitable growth and improve returns.
Positive Earnings Surprise History: The company has an impressive record of earnings surprises. It surpassed the Zacks Consensus Estimate in the trailing four quarters, recording an average positive earnings surprise of 6.84%.
Growth Drivers in Place: Roughly half of Avery Dennison’s sales are now linked to either any or both of its presence in emerging markets and faster-growing high-value categories, such as specialty labels, industrial tapes and Radio-frequency identification (“RFID”). Above-average growth is projected from both, over the longer term. Focus on productivity, acquisitions, aggressive cost control and share repurchases will be conducive to its results.
The Label and Graphic Materials segment is its largest and highest-return business. This segment will maintain strong top-line growth and continued margin expansion, aided by improvement in emerging markets, company’s strategic focus on high-value categories (including specialty labels) and the ongoing contribution from productivity initiatives.
The Industrial and Healthcare Materials segment is poised to benefit from the Yongle, Finesse and Mactac acquisitions. Despite a challenging retail environment, the Retail Branding and Information Solutions segment continues to perform well on the back of the business-model transformation that has enabled it to gain market share, while driving significant margin expansion as well as continued strength in RFID.
Avery Dennison has a long-term earnings growth rate of 7%.
Other Stocks to Consider
Some other top-ranked stocks in the sector include Encore Wire Corporation WIRE, Capstone Turbine Corporation CPST and Axon Enterprise, Inc. AAXN. While Encore Wire sports a Zacks Rank #1, Capstone Turbine and Axon Enterprise carry the same rank as Avery Dennison.
Encore Wire has an average positive earnings surprise history of 20.8% in the trailing four quarters. Its shares have gone up 27% in a year’s time.
Capstone Turbine has an average positive earnings surprise history of 20.8% in the trailing four quarters. Its shares have rallied 49% over the past year.
Axon Enterprise has a positive average earnings surprise history of 188% in the trailing four quarters. The company’s shares have been up 75% over a year’s time.
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