Shares of Avery Dennison Corporation (AVY) reached a new 52-week high of $45.02 on July 8, surpassing the previous high of $44.92. The new high is based on the expected benefits from its restructuring initiatives and divestiture of underperforming businesses.
The Pasadena, CA-based pressure-sensitive materials producer, which has a market cap of roughly $4.47 billion, has delivered a robust one-year return of about 69.2% and year-to-date return of about 30.4%, outperforming the S&P 500. The company’s long-term estimated earnings per share growth rate is 14.4%. Average volume of shares traded over the last three months is approximately 685K.
Avery’s Strengths
Avery has divested both its Office and Consumer Products (OCP) and Designed and Engineered Solutions (DES) units. The segments have been struggling for a long time. With the divestiture, Avery is now able to focus on its market-leading, pressure sensitive materials business and Retail Branding and Information Solutions segment. This will also help it in attaining financial targets of double-digit earnings growth and higher returns.
Avery has aggressively implemented a restructuring program to reduce costs across all business segments. The program is anticipated to be completed by mid 2013. Avery expects to save more than $100 million annually by leveraging this program by mid 2013.
Avery’s adjusted earnings increased 37% year over year to 59 cents per share in first-quarter 2013 and revenues rose 4% year over year to $1.5 billion. Avery also hiked its quarterly dividend by 7%, from 27 cents per share to 29 cents per share.
Avery remains committed to its long-term targets of sales growth in the range of 3% to 5% and net income growth of 10–15% by 2015. Earnings growth of 15–20% is expected to be achieved through continued development in emerging markets and productivity improvements.
In addition, the company expects to generate free cash flow of around $1.2 billion to $1.4 billion over the 2012–2015 timeframe or $1.6 billion to $1.8 billion (including $400 million from the abovementioned sale). Of this, $150 million to $300 million will be used to repay debt, more than $200 million will be invested in acquisitions and $1 billion to $1.5 billion will be returned to shareholders over the period in combined share buyback and dividends.
Avery currently retains a Zacks Rank #2 (Buy).
Other Stocks to Consider
Other stocks in the same industry with favorable Zacks Rank are Energizer Holdings Inc. (ENR), CompX International Inc. (CIX) and Herman Miller Inc. (MLHR). While Energizer Holdings holds a Zacks Rank #1 (Strong Buy), CompX International and Herman Miller carry a Zacks Rank #2 (Buy).
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