Why Avery Dennison Is Still A Buy: Analyst Highlights 40% Growth In Intelligent Labels And End To Destocking

Truist Securities analyst Michael Roxland reiterated a Buy rating on the shares of Avery Dennison Corp AVY with an unchanged price target of $215.

In-line with comments it made during 2Q earnings, AVY expects destocking, which has occurred across a majority of end-markets and categories, to largely conclude in 2H, said the analyst.

During 2Q, AVY incurred two weeks of notable label destocking in North America and Europe equating to 15% of volumes on a normalized basis with each week costing about $50 million - $60 million in revenue.

These trends should normalize in 3Q and 4Q as destocking lessens, the analyst remarked.

In Europe, there has been steady improvement thus far in 3Q with the company reiterating that destocking should largely conclude by the end of the quarter.

While there is still the potential for volumes to be weak in Europe given softer consumer demand, the end of destocking should lead to an improvement in the rate of volume decline, added the analyst.

While AVY noted that some retailers continue to cite softness in apparel and back-to-school, apparel inventories are trending better, noted the analyst.

While apparel volumes remain challenged in Intelligent Labels (IL), non-apparel remains strong with AVY still expecting Intelligent Labels to increase about 40%+ in 2H due to logistics and food project deployments.

Also, according to the analyst, the company is experiencing growth in other verticals such as food and general merchandise, which along with logistics will drive 20% y/y growth. 

Overall, the analyst is more constructive on the company given Intelligent Label growth momentum and improving fundamentals as destocking concludes.

Price Action: AVY shares are trading lower by 1.71% at $184.99 on the last check Tuesday.