Avery Dennison Corp.’s first quarter earnings to be reported this week are expected to be lower, just as they were last quarter.
And the company’s stock has trended lower, too. Yet analysts still favor the Glendale label maker.
BMO Capital Markets Corp. analyst John McNulty, for example, rated the stock as an outperform or a buy about the time of the company’s last quarterly earnings report Feb. 2, when it reported adjusted net income equal to $2.13 a share, down from $2.27 in the same period a year earlier.
Revenue, however, increased by 10 percent, to $2.2 billion. And McNulty wrote that despite supply chain problems and higher costs, some of the company’s segments saw significant growth that “helped to offset the temporary headwinds.”
Matthew Miller, an equity analyst with CFRA, wrote in a research report this month that Avery Dennison was due for a good year and that he forecast 10 percent growth for the company.
“During lockdowns related to Covid-19, label and tag demand for the apparel industry was a major drag on growth but has bounced back strong,” Miller wrote. The company’s label and graphic materials business “has benefited from strong demand in food, hygiene, and pharmaceutical product labeling and information labeling related to e-commerce.”
Miller also rated the stock a buy, driven by his view of Avery’s resilient business model and his outlook for growing free cash flow, despite risks facing global economic growth.
He thinks the company has strong competitive advantage in many of its markets, he said in the report.
“Long-term growth is expected to be driven by market expansion in pressure-sensitive labels and further penetration of emerging markets,” Miller wrote. “We forecast strong growth in the RFID (Intelligent Labels) market (continued strength in apparel and new market penetration) and we forecast AVY benefiting from expanding margins (over the long term) from higher prices and a better product mix.”
Stock down
However, the stock has trended down.
In the 52-week period ending April 20, shares in Avery Dennison lost about 14 percent of their value. During the same span, the S&P 500 index gained nearly 8 percent. The stock closed at $171.08 on April 20.
What’s more, the company is expected to report lower earnings on April 26, at least according to Zacks Investment Research.
Zacks on April 19 said the consensus among analysts who follow the manufacturer is that the company will report earnings per share of $2.18 for the quarter ending in March. That is a 9 percent decrease from the same period a year earlier when earnings were $2.40.
“Revenues are expected to be $2.3 billion, up 12 percent from the year-ago quarter,” Zacks said.
The stock research firm uses a proprietary model that relies partly on information from analysts who cover a company.
But, once again, the company is rated positively by Zacks.
“On the other hand, the stock currently carries a Zacks Rank of No. 3 (or a hold),” Zacks said.
It went on to explain that its system tries to assess a company’s likelihood of exceeding earnings expectations. Of the last four quarters, Avery Dennison had beaten he consensus EPS estimates three times.
“Avery Dennison doesn’t appear a compelling earnings-beat candidate,” the Zacks story concluded. “However, investors should pay attention to other factors too, for betting on this stock or staying away from it ahead of its earnings release.”
