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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) continues to deliver strong results on the back of acquisitions, strong presence in emerging markets and ongoing momentum in segments. Growth in high-value product categories, focus on productivity improvement, and a disciplined capital-management approach will also drive growth.

It has an estimated long-term earnings growth rate of 8.30%, higher than the industry’s 7.6%.

The company currently has a Zacks Rank #3 (Hold) and a VGM Score of B. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) 2 (Buy) or 3, offer the best investment opportunities.

Factors Favoring Avery Dennison

Price Performance

Over the past six months, Avery Dennison’s shares have gained 13.5%, outperforming the industry’s growth of 9.9%.

 

Earnings Surprise History

The company outpaced the Zacks Consensus Estimate in the trailing four quarters by 2.21%, on average.

Return on Equity (ROE)

Avery Dennison’s trailing 12-month ROE of 53.8% reinforces its growth potential. The company’s ROE is higher than the ROE of 21.6% for the industry, highlighting its efficiency in utilizing shareholders’ funds.

Upbeat Earnings Growth Projections

The Zacks Consensus Estimate for the company’s ongoing-year earnings is currently pegged at $7.05, suggesting growth of 7.7% from the prior year.

Growth Drivers

Avery Dennison continues to deliver solid margin expansion and double-digit adjusted earnings improvement, backed by acquisitions, organic growth and strong presence in emerging markets.
 
The company is focused on four overarching priorities, which include driving growth in high-value product categories, enhancing profitability in base businesses, relentlessly pursuing productivity improvement and a disciplined capital-management approach.

The Label and Graphic Materials segment will maintain its stellar top-line momentum and margin expansion, aided by growth in emerging markets and focus on high-value categories led by specialty labels and contributions from productivity initiatives. Furthermore, the completion of restructuring actions associated with the consolidation of its European footprint will bring in higher returns and provide the segment a competitive edge.

The company will benefit from its fast-growing high-value product categories, such as specialty labels and Radio-frequency identification. Avery Dennison anticipates strong engagement among apparel retailers and brands as well as promising early-stage developments in other end markets. Moreover, the company has increased investments to fuel growth with higher spending for business development and R&D.

The Industrial and Healthcare Materials (IHM) segment will benefit from the Yongle, Finesse and Mactac acquisitions. Avery Dennison’s balance sheet remains strong and has ample capacity to continue funding acquisitions, executing disciplined capital-allocation strategy, investing in organic growth and returning cash to shareholders
 
Risks

In spite of significant growth prospects, Avery Dennison is plagued by sluggish market trends and currency headwinds. These are likely to impact results at least in the near term.

Stocks to Consider

Some better-ranked stocks in the Industrial Products sector are DXP Enterprises, Inc. (DXPE - Free Report) , Cintas Corporation (CTAS - Free Report) and Graphic Packaging Holding Company (GPK - Free Report) . While DXP Enterprises sports a Zacks Rank #1, Cintas and Graphic Packaging carry a Zacks Rank of 2, at present. You can see the complete list of today's Zacks #1 Rank stocks here.

DXP Enterprises has an estimated earnings growth rate of 10.5% for the ongoing year. In the past six months, the stock has appreciated 16%.

Cintas has an expected earnings growth rate of 15.6% for the current year. The stock has surged 16% over the past six months.

Graphic Packaging has a projected earnings growth rate of 13.1% for 2020. The company’s shares have gained 19% over the past six months.

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