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Bear of the Day

Avery Dennison Corp.'s (AVY) first quarter 2012 adjusted EPS dipped 4% to $0.45 and revenues declined 3% to $1.48 billion. Since the second quarter of 2011, Avery has been plagued with weak volumes in its two major businesses: Pressure-Sensitive Materials and Retail Branding and Information Solutions.

Given the uncertain scenario, we do not expect a recovery in volumes in the near future. Avery generates one third of its revenue from Europe, and given the weak demand in the region, we maintain a cautious stance. Furthermore, rising raw materials prices, negative currency translation and slower growth following the sale of the Office and Consumer Products business remain headwinds.

We thus reiterate our Underperform recommendation on Avery Dennison with a target price of $27 per share. This target amounts to 13.6x our 2012 EPS estimate.

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