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Why Avery Dennison (AVY) is a Must-Add to Your Portfolio

Zacks

Avery Dennison Corporation AVY stock looks promising at the moment. We are optimistic about the company’s prospects and believe that the time is right for you to add the stock to portfolio as it looks promising and is poised to carry the momentum ahead.

Let’s delve deeper and find out what are the factors that make this producer of pressure-sensitive materials an attractive investment option.

What’s Working in Favor of Avery Dennison?

Solid Rank: Avery Dennison currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. The company also has a Value Growth Momentum Score (VGM Score) of 'B’. Our research shows that stocks with a VGM Score of ‘A’ or ‘B’ combined with a Zacks Rank #1 (Strong Buy) or 2, offer the best investment opportunities for investors. Thus, the company appears to be a compelling investment proposition at the moment.

An Outperformer: Avery Dennison’s shares climbed 20.1% in the past one year, outperforming the industry’s growth of 18.1%.



Strong Q2, Upbeat Guidance: Avery Dennison reported adjusted earnings of $1.31 per share in second-quarter 2017, up 20% from $1.09 recorded in the year-ago quarter.

For 2017, Avery Dennison raised adjusted earnings per share guidance range to $4.75–$4.90 from the prior band of $4.50–$4.65, on the back of continued strong operating performance and a reduction in tax rate. The mid-point of the guidance range reflects a year-over-year growth of 20%. The company anticipates reported sales growth in the range of 7–8% for the full year, reflecting the impact of the Yongle and Finesse acquisitions along with a smaller currency headwind. Further, it remains confident about the consistent execution of strategies which will help achieve long-term goals for superior value creation, while driving profitable growth and improving returns.

Positive Earnings Surprise History: Avery Dennison topped the Zacks Consensus Estimate in the last reported quarter, recording a positive surprise of 10.08%. In the trailing four quarters, the company posted an average positive earnings surprise of 6.07%.

Positive Growth Projections: The Zacks Consensus Estimate for earnings is $4.85 for fiscal 2017 which reflects a year-over-year growth of 20.65%. For fiscal 2018, the Zacks Consensus Estimate for earnings is pegged at $5.20, year-over-year growth of 7.22%. Avery Dennison has long-term expected earnings per share growth of 7%.

Superior Return on Assets (ROA): Avery Dennison’s ROA of 8.44%, as compared with the industry average of 6.9%, exhibits its efficiency in generating earnings by effectively managing assets.



Higher Inventory Turnover Ratio: In the trailing 12 months, the inventory turnover ratio for Avery Dennison has been 7.92% compared with the industry’s level of 6.56%. 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: Avery Dennison’s aggressive cost-cutting and restructuring as part of the current optimization program are likely to lead to improved savings and boost earnings. Its segments also remain well poised for growth. The company will continue to increase the pace of investment to leverage specialty labels, graphics, and reflective solutions business, as demonstrated by the acquisitions of Mactac Europe, Hanita Coatings, and Ink Mill, as well as its investment to expand the plant in Luxembourg.

Further, Avery Dennison has acquired Yongle Tape Company, a manufacturer of specialty tapes and related products used in a variety of industrial markets, including the global automotive industry. Additionally, it has acquired Finesse Medical, a maker of materials used for wound care and skin treatments. Finesse Medical’s product portfolio of silicone gels and polyurethane foam dressings will complement its products in wound care.

Stocks to Consider

Other top-ranked stocks worth considering in the same sector are AGCO Corporation AGCO, Caterpillar Inc. CAT and Terex Corporation TEX. All three stocks sport a Zacks Rank #1 (Strong Buy).

AGCO has expected long-term growth rate of 13.51%.

Caterpillar has expected long-term growth rate of 9.50%.

Terex has expected long-term growth rate of 19.67%.

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