Avery Dennison (AVY): Alluring Growth in a Plain Wrapper

Certain “old line” companies just don’t seem very sexy, prompting the investment herd to give them short shrift. But if you look closely, you’ll sometimes see more allure than meets the eye. avery-dennison-avy-stock-logo-185

Consider Avery Dennison Corp (NYSE:AVY), which manufactures and sells pressure-sensitive labels, packaging products and office supplies. With a market cap of $4.7 billion and operations in more than 50 countries, Avery Dennison provides basic paper materials without which the consumer goods sector couldn’t function.

As such, AVY stock is a reliable cyclical play on recovery.

But you probably think that a paper packaging company is too boring for your portfolio, right? Think again. Glendale, California-based Avery Dennison is also the world’s biggest manufacturer of Radio Frequency Identification (RFID) tags, which complement its supply chain-oriented business.

RFID technology uses tiny transponders, or tags, to pinpoint an object’s location. Each miniaturized tag, some weighing as little as a grain of rice (0.0725 ounces), sports an embedded antenna that transmits and receives radio waves from an RFID transceiver.

Avery Dennison’s RFID division includes an R&D unit that’s separate from the rest of the company’s other segments. Management considers RFID as Avery Dennison’s biggest long-term growth opportunity and a vehicle for the company to remain technologically innovative in an otherwise stodgy industry.

By deploying RFID, organizations can more efficiently locate any item, warehouse pallet or individual with uncanny accuracy. Any person, product, part, or animal that needs to be tracked poses an opportunity for an RFID application.

RFID is used by the military and commercial sectors and it increasingly pervades a host of industries, including automobile manufacturing, healthcare, pharmaceuticals and agriculture. In a globalized, 24/7 economy characterized by vast supply chains, RFID is a growing phenomenon.

AVY Stock Beats the Street

And Avery Dennison is growing right along with RFID, making AVY stock a good long-term prospect beyond just cyclical gains. Before the markets opened this morning, Avery Dennison announced robust fourth-quarter and full-year earnings that beat Wall Street’s expectations.

Avery Dennison’s fourth-quarter earnings came in at $70.9 million, for earnings per share of 76 cents, up from 69 cents for the same period a year ago. Adjusted for one-time gains and costs, EPS was 90 cents, beating the consensus estimate of 80 cents. Revenue in the quarter reached $1.6 billion, for a year-over-year gain of 1.3%.

For the full year, Avery Dennison reported earnings of $248.9 million and EPS of $2.60. Revenue reached $6.3 billion, for a year-over-year gain of 3%.

Avery Dennison stock remained nearly flat since the beginning of the year, while the S&P 500 index has fallen 3 percent. Over the past 12 months, AVY stock has increased 5%. Management expects EPS this year to be $3.20 to $3.40, roughly in line with the average consensus.

The Bottom Line

Companies such as Avery Dennison are textbook ways to leverage economic recovery. But therein lies a risk: as recovery inevitably follows the downward slope of the bell curve, cyclical plays typically start to lose steam. However, it’s likely that AVY stock will retain its mojo even if the overall economy does not.

The fact that this global company reported solid operational gains this quarter, despite currency headwinds overseas, is an auspicious sign for 2015.

As of this writing, John Persinos did not hold a position in any of the aforementioned securities.

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