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Avery Dennison (AVY) Stock Up 23% YTD: What's Driving It?

Zacks Equity Research logoZacks Equity Research 3/15/2019 Zacks Equity Research
Shares of Avery Dennison Corporation AVY have gained 22.6% year to date, spurred by its upbeat fourth-quarter 2018 results and 2019 outlook, as well as expected benefits from pricing actions and restructuring activities. Also, the company’s acquisitions and strong presence in emerging markets will be conducive to its growth in the days ahead. 
 
Avery Dennison, a Zacks Rank #1 (Strong Buy) stock, has a market cap of roughly $9.2 billion. You can see the complete list of today’s Zacks #1 Rank stocks here.
 
Additionally, Avery Dennison has an impressive VGM Score of B. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of all three scores. 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.
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The stock’s 22.6% year-to-date rise comes in line with the industry’s growth. Let’s delve deeper and analyze the reasons behind the company’s impressive price performance and find out if there is room for further appreciation:
 
Upbeat Q4: Avery Dennison’s fourth-quarter 2018 adjusted earnings per share of $1.52 surpassed the Zacks Consensus Estimate and increased around 14% year over year. Total revenues rose 2% to $1.77 billion from $1.74 billion in the year-earlier quarter.
 
Strong Outlook: For 2019, Avery Dennison issued adjusted earnings per share guidance of $6.45-$6.70, reflecting growth of 6-11% over the $6.06 earned in 2018. Including the impact of the pension-settlement charge, earnings per share guidance is at $2.70-$2.95 for the current year.
 
Healthy Growth Projections: The Zacks Consensus Estimate for Avery Dennison’s 2019 earnings is currently pegged at $6.57, reflecting year-over-year growth of 8.42%. The same for 2020 stands at $7.19, indicating a year-over-year rise of 9.4%. The stock also has a long-term expected earnings per share growth rate of 7%.
 
Positive Earnings Surprise History: The company surpassed estimates in the trailing four quarters, recording average positive earnings surprise of 3.63%.
 
Growth Drivers in Place: Avery Dennison continues to deliver strong top-line growth, margin expansion and double-digit adjusted EPS improvement. This is backed by acquisitions, organic growth and strong presence in emerging markets.
 
The company continues to focus on four overarching priorities, comprising driving outsized growth in high-value product categories, growing profitability in base businesses, relentlessly pursuing productivity improvement, and a disciplined capital-management approach. Also, it continues to combat raw material inflation with pricing actions. 
 
The Label and Graphic Materials segment is Avery Dennison’s largest and highest-return business. This segment will maintain its momentum of solid top-line growth and continued margin expansion, aided by growth in emerging markets, focus on high-value categories (including specialty labels), as well as contributions from productivity initiatives.
 
Furthermore, Avery Dennison’s restructuring actions associated with the consolidation of the European footprint of its LGM segment will bring in higher returns for the segment and boost the company’s competitiveness. The plan, which is anticipated to close by 2019, is expected to result in annualized savings of approximately $25 million, beginning 2020.
 
The company will also benefit from its fast growing high-value product categories, such as specialty labels and Radio-frequency identification (RFID). RFID sales grew 20% in the Oct-Dec quarter. Avery Dennison expects to see strong engagement among apparel retailers and brands, as well as promising early-stage developments in other end markets. It also expects RFID will deliver annual growth of more than 15-20%. The company increases its investments to fuel growth with higher spending for business development and R&D.
 
Avery Dennison remains confident for its target of 4-5% plus organic growth for The Industrial and Healthcare Materials (IHM) segment over the longer term and expects to witness the company’s margin gradually expand by 2021. The segment will benefit from the Yongle, Finesse and Mactac acquisitions. Thus, the company is confident about meeting growth and margin targets for this business over the long term.
 
Other Stocks to Consider
 
A few other top-ranked stocks in the Industrial Products sector are Zebra Technologies Corp. ZBRA, Albany International Corp. AIN and Mueller Industries, Inc. MLI, each sporting a Zacks Rank #1 (Strong Buy). 
 
Zebra Technologies has an expected earnings growth rate of 13.3% for 2019. Its shares have gone up 33.5%, year to date. 
 
Albany International has a projected earnings growth rate of 35.8% for the ongoing year. The stock has gained 16.2% in the year-to-date period. 
 
Mueller Industries has an estimated earnings growth rate of 2.2% for the current year. Its shares have surged 35.9% year to date.
 
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