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Avery Dennison (AVY) Upgraded to Buy on Bright Prospects

Avery Dennison Corporation AVY has been upgraded to a Zacks Rank #2 (Buy) on May 26,

Going by the Zacks model, companies sporting a Zacks Rank #1 (Strong Buy) or 2 have strong chances of outperforming the broader market.

Year to date, the company has outperformed the Zacks classified Office Supplies & Forms sub-industry with respect to price performance. The stock rallied 20%, while the industry recorded gain of a meager 1.3%.

Why the Upgrade?

Market sentiments have been favoring Avery Dennison for quite some time now, especially after the company reported better-than-expected first-quarter results. In the quarter, earnings and revenues improved on a year-over-year basis and also beat the Zacks Consensus Estimate on both the counts.

For 2017, the company hiked adjusted earnings per share guidance to a range of $4.50–$4.65, reflecting a stronger operating outlook and a lower tax rate. Avery Dennison also anticipates organic sales growth of 3.5–4.5% for full-year 2017, reflecting solid results in the first quarter. Further, it expects to deliver sixth consecutive year of a double-digit increase in EPS and solid organic sales growth. The company’s consistent execution of strategies continues to enhance competitive advantage while driving profitable growth. Consistent focus on productivity, cost control and share repurchases will also drive results.

Notably, Avery Dennison announced 10% dividend hike to 45 cents per share, earlier in April. The company’s balance sheet remains strong and has ample capacity to continue funding acquisitions, as well as returning cash to shareholders. It repurchased 0.5 million shares in the first quarter at an aggregate cost of $35 million and paid $36 million in dividends.

Recently, the company has acquired Longford, Ireland-based Finesse Medical, a maker of materials used for wound care and skin treatments. Finesse Medical is a strategic fit with Avery Dennison’s Vancive Medical Technologies. Finesse Medical’s product portfolio of silicone gels and polyurethane foam dressings will complement Avery Dennison’s products in wound care. Further, its converting and packaging capabilities will enable Avery Dennison to offer expanded manufacturing services to customers.

Avery Dennison Corporation Price and Consensus

Avery Dennison Corporation Price and Consensus | Avery Dennison Corporation Quote

Avery Dennison also has a positive record of earnings surprise in the last few quarters. Investors seem to be optimistic about its future prospects, given that estimates for fiscal 2017 has moved up 4% and for fiscal 2018 have gone up 4%. The projected year-over-year earnings growth for fiscal 2017 is at 14.74% and 9.14% for fiscal 2018.

Other Stocks to Consider

Other top ranked stocks worth considering in the same sector are AGCO Corporation AGCO, Caterpillar, Inc. CAT and Deere & Company DE. All the three stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AGCO has an average positive earnings surprise of 40.39% in the trailing four quarters. Caterpillar generated an average positive earnings surprise of 40.25% in the past four quarters. Deere has an average positive earnings surprise of 9.89%.

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