Avery Dennison Stands Strong: Analyst Reaffirms Buy Rating, Unaffected by Red Sea Supply Chain Concerns

Truist Securities analyst Michael Roxland reiterated a Buy rating on the shares of Avery Dennison Corporation AVY with an unchanged price target of $249.

Earlier this week, several apparel retailers like Abercrombie & Fitch Co ANF and Lululemon Athletica Inc LULU raised fourth-quarter FY23 sales guidance predicated on better-than-expected holiday sales following some improvement in U.S. apparel sales in November, says the analyst.

The analyst notes that weak apparel demand hampered more prominent Intelligent Labels growth for most of 2023 as apparel is Avery Dennison's largest end market in Intelligent Labels, comprising about 75% of Intelligent Labels sales.

Also, AVY closed out four new apparel accounts in the second quarter, which first began to deploy in the third and fourth quarters and should also positively impact 2024, says the analyst.

Improvement in apparel should allow AVY to achieve its targeted 20%+ growth in Intelligent Labels, writes the analyst.

The analyst noted that potential supply chain disruptions from the Red Sea attacks have been minimal.

The $249 price target is based on an equal-weight of the analyst's 2024E EPS forecast with a P/E multiple of 22-23x, 2024E EBITDA forecast with an EV/EBITDA multiple of 14-15x, and 2024E free cash flow forecast with a yield of 3% – 4%.

Price Action: AVY shares are trading higher by 0.11% at $196.94 on the last check Friday.