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Here's Why You Should Retain Avery Dennison (AVY) Stock Now

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Avery Dennison Corporation (AVY - Free Report) has been benefiting from robust demand for consumer-packaged goods and e-commerce growth. Strong demand for labeling technology coupled with solid growth in high-value products, intelligent labels, Radio-frequency identification (RFID) and core apparel business will boost growth. Also, anticipated benefits from pricing and re-engineering actions will continue to stoke growth. However, cost inflation and supply chain disruptions are likely to dent the company’s performance in the near term.

Positive Earnings Surprise History: Avery Dennison, a Zacks Rank #3 (Hold) stock, has a trailing four-quarter earnings surprise of 5.31%, on average.

Solid Growth Expectations: The company’s earnings estimate for the current year is pegged at $9.71, suggesting year-over-year growth of around 9%.

Upward Estimate Revision: Current year figures are looking promising, with three estimates moving higher in the past 60 days compared to no downward revisions. Earnings estimates for 2022 have gone up 1.15% over the same time frame.

Raised View: In first-quarter 2022 earnings call, Avery Dennison hiked financial guidance for the current year. Adjusted EPS for 2022 is now expected in the band of $9.45-$9.85, up from the prior guidance of $9.35-$9.75. The company reported an adjusted EPS of $8.91 in 2021. It expects organic sales growth of 15%-17%, driven by higher volume and the impact of higher prices.

Other Driving Factors

Labeling non-durable consumer goods, like food, beverage, home and personal care products, accounts for around 40% of Avery Dennison’s revenues. The company is witnessing soaring demand for these products amid the pandemic. Over the long run, increasing demand from emerging markets owing to the rising middle class, the consequent surge in demand for packaged goods and a shift in the labeling technology to pressure-sensitive materials will fuel the company’s growth. Apart from these factors, around 15% of its revenues are tied to logistics and shipping, which will be aided by a rise in e-commerce activities.

Label and Graphic Materials segment is gaining from strong demand for consumer-packaged goods and e-commerce trends. In the current year, the segment is well poised to benefit from solid top-line growth and margin expansion, volume improvement, focus on growing high-value categories led by specialty labels and contributions from productivity initiatives.

Avery Dennison’s Retail Branding and Information Solutions (RBIS) segment is gaining from solid margin expansions, driven by strength in high-value categories and the base business. The segment is witnessing strong volume growth in Intelligent Labels, RFID and the core apparel label business, with particular strength and performance in premium channels and continued double-digit growth in external embellishments.

The segment’s Intelligent Labels business expects long-term annual growth of 15-20%, with solid growth in the apparel business. Apart from apparel, the RBIS segment is recording growth in new applications within the food, logistics and home goods.

Avery Dennison has undertaken several pricing and re-engineering actions to mitigate inflationary cost pressure. The company has also announced additional price increases in most of its businesses worldwide. These factors will support the company’s margins.

Uncertainties related to the pandemic persistently affect its performance until the situation stabilizes. Strong demand and supply constraints are likely to push raw material, labor and freight costs. These factors might dent the company’s margins in second-quarter 2022.


Stocks to Consider

Some better-ranked stocks in the Industrial Products sector are Graphic Packaging Holding Co. (GPK - Free Report) , Myers Industries (MYE - Free Report) and Packaging Corporation of America (PKG - Free Report) , each flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Graphic Packaging has an estimated earnings growth rate of 86.8% for the current year. In the past 60 days, the Zacks Consensus Estimate for current-year earnings has been revised upward by 7.6%.

Graphic Packaging pulled off a trailing four-quarter earnings surprise of 7.2%, on average. The company’s shares have appreciated 14.8% in a year.

Myers Industries has an expected earnings growth rate of 67% for 2022. The Zacks Consensus Estimate for the current year’s earnings has moved up 27% in the past 60 days.

MYE has a trailing four-quarter earnings surprise of 20.1%, on average. Myers Industries’ shares have gained 13% in the past year.

Packaging Corp. has an expected earnings growth rate of 16.2% for 2022. The Zacks Consensus Estimate for the current year’s earnings rose 4.2% in the past 60 days.

PKG has a trailing four-quarter earnings surprise of 19.6%, on average. Packaging Corporation’s shares have gained 4% in the past year.

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