On Thursday, UBS adjusted its stance on Avery Dennison Company (NYSE:) inventory, an organization specializing in adhesive manufacturing, from a “Buy” to a “Neutral” score. The agency additionally lowered the value goal for Avery Dennison shares from $262.00 to $235.00.
The revision follows considerations over the tempo of progress within the firm’s radio-frequency identification (RFID) section, which is now anticipated to be much less sturdy than beforehand anticipated.
Based on UBS, Avery Dennison’s RFID progress is projected to sluggish later within the yr as a result of delays in adoption and trials. Whereas RFID progress stays sturdy, with a year-over-year enhance within the excessive teenagers, the anticipated acceleration in natural progress by way of 2024 is unlikely to materialize as anticipated. This reassessment is partly as a result of slower restoration of attire volumes, which was initially thought to spice up progress.
The agency additionally famous that the margins within the Options section of Avery Dennison’s enterprise have been underperforming relative to expectations. This has prompted UBS to regulate its estimates, foreseeing slower RFID progress within the years 2024 and 2025, with projections now at 16% and 19% year-over-year progress, respectively, down from the earlier estimates of 19% and 22%.
Because of these changes, UBS has trimmed its 2025 earnings per share (EPS) estimate for Avery Dennison by roughly 3%, aligning it extra carefully with the consensus. The up to date value goal of $235.00 relies on a price-to-earnings (P/E) a number of of round 21 occasions and a free money stream (FCF) yield of roughly 4%.
Regardless of the downgrade, UBS nonetheless expects Avery Dennison to expertise above-average progress, with RFID anticipated to make up about 13% of the corporate’s gross sales by 2025, in comparison with roughly 7% within the years 2020 and 2021.
In different latest information, Avery Dennison Corp reported sturdy second-quarter efficiency, surpassing earnings expectations with an earnings per share (EPS) of $2.42. In consequence, the corporate raised its full-year earnings steerage to between $9.30 and $9.50 per share, indicating an roughly 20% progress over the earlier yr.
Following these developments, BMO Capital Markets adjusted its outlook on Avery Dennison, decreasing its value goal on the inventory to $254 from the earlier $256, whereas sustaining an Outperform score. Truist Securities additionally adjusted its outlook, rising the value goal to $258 from $253, whereas reaffirming a Purchase score on the inventory.
The revised earnings outlook relies on an anticipated natural gross sales progress of about 4-5%, and the corporate expects quantity progress to be within the excessive single-digit share vary year-over-year.
Nonetheless, Avery Dennison anticipates a mid-single-digit share decline in Q3 EPS as a result of historic seasonal quantity drops. Regardless of these challenges, the corporate expects file income in This fall and targets over 20% quantity progress in clever labels for the yr.
The resilience of the Supplies group, important progress within the Options group, and confidence within the progress potential of their clever labels platform have been highlighted. Extra perception into Avery Dennison’s long-term methods might be offered throughout the firm’s Investor Day in September. These latest developments point out the corporate’s ongoing efforts to keep up sturdy progress and adapt to market situations.
InvestingPro Insights
The latest revision by UBS on Avery Dennison Company (NYSE:AVY) displays a cautious outlook on the corporate’s progress potential, significantly in its RFID section. To supply extra context to traders, InvestingPro knowledge reveals a market capitalization of $17.3 billion and a P/E ratio of 28.35, which signifies a comparatively excessive valuation based mostly on earnings. As of the final twelve months as much as Q2 2024, Avery Dennison has skilled a modest income progress of 1.14%, suggesting a gentle, albeit not speedy, enlargement in gross sales.
Based on InvestingPro Ideas, Avery Dennison has a historical past of delivering to its shareholders, having raised its dividend for 13 consecutive years, and sustaining dividend funds for 54 consecutive years. This demonstrates a dedication to returning worth to traders, which may very well be a reassuring issue amidst considerations over the tempo of RFID section progress. Nonetheless, it is also famous that 5 analysts have revised their earnings downwards for the upcoming interval, which can be aligned with UBS’s cautious stance.
For traders looking for a deeper evaluation and extra insights, InvestingPro presents extra recommendations on Avery Dennison, which might be accessed by way of Investing.com/professional/AVY. Use coupon code PRONEWS24 to stand up to 10% off a yearly Professional and a yearly or biyearly Professional+ subscription, unlocking a wealth of information and skilled evaluation to tell your funding choices. There are a complete of 11 extra InvestingPro Ideas accessible for Avery Dennison, offering a complete view of the corporate’s monetary well being and market efficiency.
This text was generated with the help of AI and reviewed by an editor. For extra info see our T&C.
