Avery Dennison Corporation (AVY - Free Report) has an impressive earnings history having outperformed the Zacks Consensus Estimate in the preceding four quarters, with an average beat of 6.1%. Further, the company is expected to perform well on the bottom-line front in the 2017 backed by aggressive cost cutting and restructuring efforts as part of the current optimization program, despite raw material inflation.
The company’s consistent execution of strategies continues to enhance competitive advantage, while driving profitable growth and improving returns. Currently, the producer of pressure-sensitive materials, and a variety of tickets, tags, labels and other converted products, carries a Zacks Rank #3 (Hold). Here's why investors should hold on to the stock at present.
Earnings Estimate Revisions
Positive estimate revisions reflect optimism in the company’s potential, as earnings growth is often an indication of robust prospects (and stock price gains) ahead. Estimates for Avery Dennison have moved up in the past 60 days, reflecting analysts’ bullish outlook. The earnings estimate for 2017 has gone up 1% for both 2017 and 2018.
The Zacks Consensus Estimate for earnings for fiscal 2017 reflects a year-over-year growth of 20.2% and for fiscal 2018 projects growth of 8.5%. Further, the company’s long-term earnings growth rate of 7% holds promise.
The company outperformed the industry it belongs to in the past year. The stock has gained 26.0% while the industry rose 24.5%.
Return on Assets (ROA)
Avery Dennison currently has a ROA of 8.4% while the industry's ROE is 6.9%. An above-average ROA denotes that the company is generating earnings by effectively managing assets.
Value Growth Momentum (VGM) Score
In aggregate, Avery Dennison currently has a VGM score of A. Here V stands for Value, G for Growth and M for Momentum. The score is a weighted combination of these three scores (Value - B, Growth - A, Momentum - B). Such a score allows you to eliminate the negative aspects of stocks and select winners. The VGM Score of A along with some other key metrics makes the company a solid choice for investors.
Higher Inventory Turnover Ratio
In the trailing 12 months, the inventory turnover ratio for Avery Dennison has been 7.9% compared with the industry’s level of 6.6%. 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
The Label and Graphic Materials segment is Avery Dennison’s largest and highest-return business. In the past four years, the business has consistently generated organic growth within its targeted range of 4-5%. The segment will benefit from growth in emerging market regions including high-single-digit growth in India and China. The new Industrial and Healthcare Materials segment continues to perform better than expectations.
In the Retail Branding and Information Solutions segment, Avery Dennison has increased the segment’s competitiveness through strategic pricing initiatives. Adoption trends remain favorable and RFID (Radio-frequency identification), which should grow more than 20% annually for the next few years. The company will continue to increase the pace of investment to leverage specialty labels, graphics, and reflective solutions business, as demonstrated by recent acquisitions. Avery Dennison’s balance sheet remains strong and has ample capacity to continue funding buyouts, as well as returning cash to shareholders.
Investors might want to hold on to the stock at present as it has ample positive prospects of outperforming peers in the near future.
Stocks to Consider
Some better-ranked stocks in the industrial product space include Lawson Products, Inc. (LAWS - Free Report) , Komatsu Ltd. (KMTUY - Free Report) and AGCO Corporation (AGCO - Free Report) . Lawson Products has expected long-term earnings growth rate of 15.0% and flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Komatsu, also a Zacks Rank #1 stock has expected long-term earnings growth rate of 12.7%.
AGCO carries a Zacks Rank #2 (Buy) and has expected long-term earnings growth rate of 13.5%.
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