Avery Dennison Corporation AVY looks promising at the moment on its stellar earnings performance in second-quarter 2019 as well as an encouraging outlook for 2019. Also, focus on pricing actions, restructuring activities, acquisitions and strong presence in emerging markets will likely drive growth for the company. We are positive on its prospects and believe that this is the right time to add the stock to your portfolio, as it is poised to retain the bullish momentum ahead.
Avery Dennison’s shares have gained 1% over the past three months against the industry’s decline of 2.0%.
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.
Let's delve deeper into the factors that make Avery Dennison stock a compelling investment option at the moment.
Sound Q2 Results
The company’s second-quarter 2019 adjusted earnings per share of $1.72 surpassed the Zacks Consensus Estimate. The reported figure also grew around 3.6% year over year.
For 2019, Avery Dennison’s adjusted earnings per share guidance is pegged at $6.50-6.65, suggesting growth of 6-11% from the 2018 reported figure. Including the impact of the pension settlement charge, the company’s earnings per share guidance is at $3.15-$3.30.
Positive Earnings Surprise History
Avery Dennison outpaced the Zacks Consensus Estimate in three of the trailing four quarters, the average positive earnings surprise being 1.10%.
Earnings estimate revisions have the greatest impacts on stock prices. The Zacks Consensus Estimate for Avery Dennison’s current-year as well as the next-year earnings has moved up around 0.3% over the past 90 days, reflecting analysts’ confidence in the stock.
Strong Earnings Growth Projections
The Zacks Consensus Estimate for the company’s earnings for the ongoing year is currently pegged at $6.57, suggesting year-over-year growth of 8.42%. The same for 2020 is pinned at $7.18, indicating year-over-year rise of 9.19%. The stock also has long-term expected earnings per share growth rate of 8.25%, higher than the industry’s growth rate of 7.60%.
Growth Drivers in Place
Avery Dennison’s revenues and earnings per share witnessed compounded annual growth rates of 4% and 18%, respectively, over the last five years ended 2018. This is being driven by acquisitions, organic growth and strong presence in emerging markets. The company focuses on four overarching priorities, comprising driving growth in high-value product categories, enhancing profitability in base businesses, relentlessly pursuing productivity improvement and a disciplined capital-management approach.
Avery Dennison’s Label and Graphic Materials (LGM) segment will maintain its momentum of stellar top-line growth and continued margin expansion, aided by growth in emerging markets, focus on high-value categories (including specialty labels) and contributions from productivity initiatives. Furthermore, the completion of restructuring actions associated with the consolidation of its European footprint will bring in higher returns and boost the segment’s competitiveness.
The company will also benefit from its fast-growing high-value product categories such as specialty labels and Radio-frequency identification (RFID). Avery Dennison anticipates strong engagement among apparel retailers and brands as well as promising early-stage developments in other end markets. Moreover, the company increased its investments to fuel growth with higher spending for business development and R&D.
Avery Dennison is confident about meeting its growth and margin targets for the Industrial and Healthcare Materials (IHM) segment over the long haul. It is likely to meet the target of 4-5% plus organic growth for the segment over the long term and anticipates witnessing gradual margin expansion by 2021.
Other Stocks to Consider
Some other top-ranked stocks in the Industrial Products sector are AGCO Corporation AGCO, Albany International Corporation AIN and UFP Technologies, Inc. UFPT. All of these stocks carry a Zacks Rank of 2 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
AGCO Corp has a projected earnings growth rate of 31.11% for the current year. The stock has gained 23% in a year.
Albany International has an estimated earnings growth rate of 33.85% for 2019. The company’s shares have gained 5% in the past year.
UFP Technologies has an expected earnings growth rate of 8.10% for the ongoing year. The stock has appreciated 12% over the past year.
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