Avery Dennison Has Investment Value That Is Hidden in a Plain Box
Avery Dennison (AVY) - Get Report manufactures and sells pressure-sensitive labels, packaging products and office supplies.
Boy, that is a real snooze-fest, right? Not for those who like steady total returns at a bargain valuation.
Avery Dennison is a defensive growth stock that portfolios need during these turbulent times.
The company is scheduled to report second-quarter earnings before the market opens on Tuesday.
Analysts expect earnings of $1.01 a share, compared with 91 cents a year earlier. For full-year 2016, earnings are projected to reach $3.83 a share, compared with $3.44 a year earlier.
In an earnings season that is expected to be dismal, those estimated operating results look darned good.
And there is a good chance that the company's results will even beat the Street. In the first quarter, Avery Dennison posted a positive earnings surprise of 9.30%.
The company has exceeded the average analyst consensus in the past four quarters, with an average positive earnings surprise of 6.61%.
With a market capitalization of $6.48 billion and operations in more than 50 countries, Avery Dennison provides basic materials without which the consumer goods sector would cease functioning. That makes Avery Dennison's stock a classic cyclical play on a recovery, but it is much more.
Glendale, Calif.-based Avery Dennison is also the world's largest manufacturer of radio frequency identification tags, which are perfectly suited for the supply chain nature of its packaging business. RFID technology uses tiny transponders or tags to pinpoint an object's location.
To offset slowing demand for its core packaging products in China and other emerging markets, Avery Dennison has been emphasizing high-tech initiatives such as RFID, to provide value-added services for which it can charge a premium. One of the surest ways to make money is to tap accelerating trends, and that describes RFID, which is increasingly prevalent in a wide variety of sectors.
Avery Dennison's strategic pivot will hold it in good stead in future quarters and also cushion the company from the inevitable ups and downs of its cyclical and commoditized core business.
The average analyst one-year price target for the stock is $78, which would represent a gain of more than 8%.
The dividend yield is 2.23%.
With a trailing price-earnings ratio of 22.93, the stock offers value compared with major rivals Ball, (75.37) Bemis (20.93) and Kimberly-Clark (44.81).
The broader market is rife with danger. For those looking for portfolio ballast, Avery Dennison is a prime candidate.
Buy the stock now, before it reports second-quarter earnings that are likely to surprise on the upside.
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John Persinos is an editorial manager and investment analyst at Investing Daily. At the time of publication, the author held no positions in the stocks mentioned.