Avery Dennison: Strong Buy Rating on Improved Materials Segment and Solutions Growth Potential

BMO Capital analyst John McNulty has maintained their bullish stance on AVY stock, giving a Buy rating yesterday.

John McNulty has given his Buy rating due to a combination of factors, including significant improvements in Avery Dennison’s Materials segment and the potential for the Solutions segment to shine in the second half of the year. McNulty highlights the substantial margin uplift in the Materials segment now that volumes have returned. He also anticipates that the Solutions segment will get back on track, with expected Interactive Logistics (IL) growth of 20% in 2024, a timeline that suggests earnings power and growth appreciation over the next 12-18 months which could lead to the stock’s outperformance.

Further reinforcing the Buy rating, McNulty believes that the recent surge in EBITDA margins for Avery Dennison is indicative of the company’s underlying earnings potential and represents a new baseline for future performance. This is supported by a recovery to higher volumes post-destocking and Avery Dennison’s more efficient operations. Despite a short-term dip in margins anticipated in the second quarter, he projects a steady increase in margins into 2025 and 2026. On the Solutions side, despite current margin pressures, McNulty expects a rebound as normalized apparel volumes and inventory levels stabilize, contributing to the stock’s potential upside.

In another report released yesterday, Raymond James also maintained a Buy rating on the stock with a $240.00 price target.

AVY’s price has also changed moderately for the past six months – from $168.330 to $217.160, which is a 29.01% increase.

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Avery Dennison (AVY) Company Description:

Avery Dennison Corp. engages in the provision of labeling and packaging materials and solutions. It operates through the following segments: Label & Graphic Materials, Retail Branding & Information Solutions and Industrial & Healthcare Materials. The Label and Graphic Materials Segment manufactures and sells Fasson, JAC, and Avery Dennison-brand pressure-sensitive label and packaging materials, Avery Dennison and Mactac brand graphics, and Avery Dennison brand reflective products. The Retail Branding and Information Solutions segment designs, manufactures, and sells a variety of branding and information solutions to retailers, brand owners, apparel manufacturers, distributors and industrial customers. The Industrial and Healthcare Materials Segment manufactures and sells Fasson-brand and Avery Dennison-brand tapes and fasteners, Vancive -brand medical pressure sensitive adhesive based materials and products, and performance polymers. The company was founded by R. Stanton Avery in 1935 and is headquartered in Glendale, CA.