Avery Dennison Corporation AVY is likely to benefit from its consistent execution of strategies that is enhancing its competitive advantage while driving profitable growth. Focus on productivity, acquisitions, aggressive cost control and share repurchases are also expected to drive results, going forward.
In fact, the stock looks promising at the moment. Therefore, we are optimistic about the company’s prospects and believe that the time is right for you to add Avery Dennison to portfolio as it is poised to carry the momentum ahead.
Let’s delve deeper and find out what are the factors that make this producer of pressure-sensitive materials an attractive investment option.
What’s Working in Favor of Avery Dennison?
Solid Rank, Score Combination: Avery Dennison carries a Zacks Rank #2 (Buy). Also, the the company 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 (Strong Buy) or 2, offer the best investment opportunities for investors. Thus, the company appears to be a compelling investment proposition at the moment.
An Outperformer: Avery Dennison’s shares have surged 48.6% in a year, outperforming the industry’s growth of 39.0%.
Strong Q3, Upbeat Guidance: Avery Dennison reported adjusted earnings of $1.26 per share in third-quarter 2017, up 25% year over year. Total revenues also improved around 11.3% to $1.68 billion from the year-earlier quarter. On an organic basis, sales were up nearly 5.3% year over year.
For 2017, Avery Dennison raised adjusted earnings per share guidance range to $4.90-$4.95 from $4.75-$4.90, projected earlier. This uptick was owing to better-than-expected operating results. The midpoint of the guidance range reflects 23% growth year over year. For 2017, the company anticipates sales growth to be around 8%, up from the previous range of 7-8%. Notably, currency translation is anticipated to be roughly neutral to sales and earnings for the same period.
Positive Earnings Surprise History: Avery Dennison topped the Zacks Consensus Estimate in the previous quarter, delivering a positive surprise of 4.136%. In the trailing four quarters, the company pulled off an average positive earnings surprise of 6.85%.
Estimates Northbound: The consensus mark for Avery Dennison has moved up in the past 30 days, reflecting the optimistic outlook of analysts. The earnings estimate for both 2017 and 2018 have climbed 3%.
Positive Growth Projections: The Zacks Consensus Estimate for current-year earnings is pegged at $4.91, which reflects a year-over-year growth of 22.1%. For 2018, same is pegged at $5.39, depicting a year-over-year growth of 9.8%. Avery Dennison has long-term expected earnings per share growth of 7%.
Superior Return on Assets (ROA): Avery Dennison’s ROA of 8.6% compared with the industry average of 6.9%, exhibits its efficiency in generating earnings by effectively managing assets.
Higher Inventory Turnover Ratio: In the trailing 12 months, the inventory turnover ratio for Avery Dennison has been 7.97% compared with the industry’s level of 6.60%.
A higher inventory turnover than the industry average means that inventory is sold at a faster rate, suggesting inventory management effectiveness.
Growth Drivers in Place: Avery Dennison’s aggressive cost-cutting and restructuring as part of the current optimization program are likely to improve savings and boost earnings. Additionally, its segments remain well poised for growth. Meanwhile, the company continues to increase the pace of investment to leverage specialty labels, graphics and reflective solutions business as demonstrated by the acquisitions of Mactac Europe, Hanita Coatings and Ink Mill, and its investment to expand the plant in Luxembourg.
Additionally, Avery Dennison has acquired Yongle Tape Company, a manufacturer of specialty tapes and related products used in a variety of industrial markets including the global automotive industry. Again, it acquired Finesse Medical, a maker of materials used for wound care and skin treatments. Going forward, Finesse Medical’s product portfolio of silicone gels and polyurethane foam dressings are likely to complement its products in wound care.
Furthermore, Avery Dennison’s balance sheet remains strong and has ample capacity to continue funding acquisitions as well as returning cash to shareholders.
Other Stocks to Consider
Some other top-ranked stocks in the sector include Lakeland Industries, Inc. LAKE, Terex Corporation TEX and H&E Equipment Services, Inc. HEES. All the three stocks flaunt a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Lakeland Industries has expected long-term growth rate of 10.00%.
Terex has expected long-term growth rate of 11.25%.
H&E Equipment Services has expected long-term growth rate of 15.55%.
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