Avery Dennison Corporation AVY looks promising at the moment, courtesy of an upbeat outlook, pricing actions and restructuring activities.
The company currently has a Zacks Rank #2 (Buy) and a VGM Score of B. 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.
Strong Q4 Results
Avery Dennison’s fourth-quarter 2018 adjusted earnings per share of $1.52 surpassed the Zacks Consensus Estimate and increased around 14% year over year. Total revenues rose 2% to $1.77 billion from $1.74 billion in the year-earlier quarter.
Positive Earnings Surprise History
Avery Dennison outpaced the Zacks Consensus Estimate in three of the trailing four quarters, the average positive earnings surprise being 3.63%.
For 2019, Avery Dennison issued adjusted earnings per share guidance of $6.45-$6.70, reflecting growth of 6-11% over $6.06 earned in fiscal 2018. Including the impact of the pension settlement charge, earnings per share guidance is at $2.70-$2.95.
Earnings estimate revisions have the greatest impact on stock prices. The Zacks Consensus Estimate for Avery Dennison’s 2019 earnings has moved up around 0.8% over the past two months, reflecting analysts’ confidence in the stock.
Strong Earnings Prospects
The Zacks Consensus Estimate for Avery Dennison’s 2019 earnings is currently pegged at $6.57, reflecting year-over-year growth of 8.42%. The same for first-quarter 2019 stands at $1.47, reflecting year-over-year rise of 2.08%. The stock also has a long-term expected earnings per share growth rate of 7%.
Growth Drivers in Place
Avery Dennison witnessed strong operating margin and revenues with organic growth of roughly 10% on pricing actions at the Label and Graphic Materials (LGM) segment in the fourth quarter. Raw material inflation was higher than expected at the beginning of the year. The company announced new pricing actions, which took effect early in the ongoing quarter. Avery Dennison’s restructuring actions associated with the consolidation of the European footprint of its LGM segment will drive returns for the segment and improve its competitiveness. The company anticipates approximately $25 million in annualized savings from this plan beginning 2020.
Avery Dennison continues to deliver strong top-line growth, margin expansion and double-digit adjusted EPS improvement. This is backed by acquisitions, organic growth and strong presence in emerging markets. The company continues to focus on four overarching priorities like driving outsized growth in high-value product categories, growing profitability in base businesses, pursuing productivity improvement, and having a disciplined capital-management approach.
Avery Dennison is confident about achieving its target of 4-5% plus organic growth for the Industrial and Healthcare Materials (IHM) segment over the long term and expects to see a gradual expansion in margin by 2021. The segment will benefit from the Yongle, Finesse and Mactac acquisitions. Thus, the company is confident about meeting growth and margin targets for this business over the long term. The company will also benefit from its faster growing high-value product categories, such as specialty labels and Radio-frequency identification.
Avery Dennison’s shares have gained 3.9% over the past six months against the S&P 500’s decline of 3.6%.
Other Stocks to Consider
Some other top-ranked stocks in the Industrial Products sector are Mueller Industries, Inc. MLI, Heritage-Crystal Clean, Inc HCCI and Albany International Corp. AIN, each sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Mueller Industries has an expected earnings growth rate of 2.1% for 2019.
Heritage-Crystal has an expected earnings growth rate of 46.7% for 2019.
Albany International has an expected earnings growth rate of 44.7% for 2019.
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