On Monday, Avery Dennison Corporation (NYSE:AVY) stock, a material science company specializing in labeling and packaging materials, received a positive outlook from Barclays with an Overweight rating and a new price target of $250. The coverage initiation reflects the firm's confidence in Avery Dennison's growth prospects, particularly in its RFID and digital ecosystem ventures.
The company has been recognized for its consistent double-digit growth in earnings per share (EPS) and cash flow, as well as maintaining stable mid-teen returns on invested capital (ROIC). Barclays highlighted Avery Dennison's effective management and strategic expansion beyond its traditional labels and materials business. This expansion is seen as a prudent reinvestment of capital into areas with faster growth and higher potential, such as RFID and digital solutions.
Barclays acknowledges investor concerns regarding the long-term growth of the RFID sector, including issues such as competition, pricing, and the timing and rates of new adoptions. Despite these concerns, the firm expects imminent new customer roll-outs to mitigate doubts, particularly referencing a teased "very soon" grocery opportunity mentioned at Avery Dennison's investor day in September.
The analyst firm believes Avery Dennison's scale, vertical integration, and first-mover advantages create a competitive edge for its Intelligent Labels business. Even in a more conservative revenue growth scenario, Barclays anticipates Avery Dennison's earnings potential to be more resilient and appealing compared to the average company covered by the firm.
The Overweight rating suggests that Barclays expects Avery Dennison's stock performance to outperform the average return of the stocks analyzed by the firm over the next 12 to 18 months. The price target of $250 implies a significant upside from the company's current market valuation.
In other recent news, Avery Dennison Corporation reported a strong Q2 performance, with earnings per share (EPS) of $2.42, exceeding expectations. This led to an increased full-year earnings guidance, with the company now expecting a range of $9.30 to $9.50 per share.
Despite a projected mid-single-digit percentage decline in Q3 EPS due to seasonal volume drops, Avery Dennison anticipates record revenue in Q4 and targets over 20% volume growth in intelligent labels for the year.
In analyst news, BMO Capital Markets lowered its price target for Avery Dennison to $252 from $254 while maintaining an Outperform rating. Similarly, Truist Securities maintained a Buy rating with a steady price target of $258.00, expressing confidence in the company's growth trajectory. However, UBS downgraded Avery Dennison from a "Buy" to a "Neutral" rating, citing concerns over slower growth in the RFID segment.
In other company news, Avery Dennison showcased the strength of its two core platforms during its recent investor day. The company's targets for its business segments, including a 15%+ growth in Radio-Frequency Identification (RFID) and a 17%+ increase in margins, were highlighted.
These projections could be on the conservative side as the company benefits from increased industrial label penetration and a shift toward higher-value materials applications.
InvestingPro Insights
Avery Dennison's strong market position, as highlighted by Barclays, is further supported by data from InvestingPro. The company's market capitalization stands at $17.28 billion, reflecting its significant presence in the material science and labeling industry. InvestingPro Tips reveal that Avery Dennison has maintained dividend payments for an impressive 54 consecutive years, demonstrating long-term financial stability and commitment to shareholder returns. This aligns with Barclays' observation of the company's consistent growth in earnings and cash flow.
The company's revenue for the last twelve months as of Q2 2024 was $8.59 billion, with a quarterly revenue growth of 6.93% in Q2 2024. This growth trajectory supports Barclays' positive outlook on Avery Dennison's expansion into RFID and digital solutions. Additionally, the company's EBITDA growth of 16.69% over the same period indicates improving operational efficiency, which could contribute to the resilient earnings potential mentioned in the analysis.
For investors seeking more comprehensive insights, InvestingPro offers 10 additional tips for Avery Dennison, providing a deeper understanding of the company's financial health and market position.
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