Avery Dennison Corporation
(AVY - Free Report
) appears a solid bet now with a plethora of catalysts aiding the stock. Continued focus on productivity, acquisitions along with aggressive cost cutting and restructuring are primary factors driving the company.
Let's delve deeper and find out the factors that make this producer of pressure-sensitive materials, and a variety of tickets, tags, labels and other converted products, a lucrative investment option at the moment.
What's Working in Favor of Avery Dennison?
The company also has a Value Growth Momentum Score (VGM Score
) of A. Our research shows that stocks with a VGM Score of A or B, combined with a Zacks Rank #1 or 2, offer the best investment opportunities. Consequently, the company appears to be a compelling investment proposition at the moment.
Above the Industry:
Avery Dennison's shares have outperformed the industry
with respect to price performance in the past year. The company's shares have gained around 19.8%, while the industry grew 19.6%.
Strong Q2 Results: Avery Dennison reported adjusted earnings of $1.66 per share in the quarter, surging 27% year over year. The figure also beat the Zacks Consensus Estimate of $1.56. The year-over-year improvement can primarily be attributed to strong operating results. Total revenues jumped around 14% to $1.85 billion from $1.63 billion a year ago. The revenue figure also surpassed the Zacks Consensus Estimate of $1.81 billion.
Upbeat 2018 Guidance: For 2018, Avery Dennison guides adjusted earnings per share to lie between $5.95 and $6.10. The mid-point of the guidance reflects year-over-year growth of 20.5%. The company remains confident about continued execution of strategies which will help achieve profitable growth and improve returns.
Avery Dennison now estimates organic sales growth of 5-5.5% for the year, reflecting higher contribution from pricing to offset inflation. The company announced new price increases during the second quarter in North America, Europe, South Asia and Latin America. Further, Avery Dennison’s aggressive cost cutting and restructuring, as part of the current optimization program, is likely to lead to higher savings and earnings.
Upward Estimate Revisions: The Zacks Consensus Estimate for earnings per share for 2018 has moved up 2% to $6.08 in the last 30 days. The earnings estimate for 2019 has also gone up 2% to $6.61.
Superior Return on Assets (ROA): Avery Dennison' ROA of 9.8%, as compared with the industry average of 7.8%, highlights the company's efficiency in generating earnings by effectively managing assets.
Positive Earnings Surprise History: The company has an impressive record of earnings surprises. It surpassed the Zacks Consensus Estimate in the trailing four quarters, recording an average positive earnings surprise of 6%.
Growth Drivers in Place: The Label and Graphic Materials segment is its largest and highest-return business. This segment will maintain strong top-line growth and continued margin expansion, aided by improvement in emerging markets, the company’s strategic focus on high-value categories (including specialty labels) and the ongoing contribution from productivity initiatives. Avery Dennison’s restructuring actions associated with the consolidation of the European footprint of its Label and Graphic Materials segment will drive higher returns for the segment and improve its competitiveness.
The Industrial and Healthcare Materials segment is poised to benefit from the Yongle, Finesse and Mactac acquisitions. The Retail Branding and Information Solutions segment continues to perform well on the back of the business-model transformation that has enabled it to gain market share, while driving significant margin expansion as well as continued strength in RFID (Radio-frequency identification). The company anticipates witnessing strong engagement among apparel retailers and brands as well as promising early-stage developments in other end markets.
Further, focus on productivity, acquisitions, aggressive cost control and share repurchases will be conducive to its results. Avery Dennison has a long-term earnings growth rate of 7%.
Other Stocks to Consider
Some other top-ranked stocks in the same sector include W.W. Grainger Inc. (GWW - Free Report
) , Chart Industries, Inc. (GTLS - Free Report
) and Tetra Tech, Inc. (TTEK - Free Report
) . While Grainger and Chart Industries sport a Zacks Rank #1, Tetra Tech carries the same rank as Avery Dennison.
Grainger has a long-term earnings growth rate of 13%. The stock has soared 115% in a year’s time.
Chart Industries has a long-term earnings growth rate of 29%. The company’s shares have appreciated 126% over the past year.
Tetra Tech has a long-term earnings growth rate of 14%. Its shares have been up 67% in the past year.
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