KeyBanc Downgrades Avery Dennison After Recent Rally

Shares of adhesive manufacturer Avery Dennison Corp AVY have appreciated around 20 percent since early December versus a 4% gain for the S&P 500 and 7% bump for the Dow Jones Containers & Packaging Index in the same period, according to KeyBanc Capital Markets.

The Analyst

Adam Josephson downgraded Avery Dennison from Overweight to Sector Weight.

The Thesis

Although Avery Dennison’s long-term fundamentals remain favorable, there is limited upside to the share price in the near term given the slowdown in global economic growth and the company’s forex translation exposure, Josephson said in the Sunday downgrade note. 

The company remains better positioned than its peers in the broader packaging group to withstand a slowing global economy, the analyst said. Avery Dennison has one of the best balance sheets in the group and caters to healthy and growing end markets, he said, adding that management has executed well in recent years.

These positives are already reflected in the share price following the stock’s outperformance over the past four months, Josephson said. 

While Avery Dennison should be able to meet its 2019 guidance, upward revisions in estimates are unlikely, the analyst said. 

Raymond James’ estimate for 2020 EPS is at $6.78, significantly below the consensus of $7.25.

A slowdown in EPS growth can be expected “given where we are in the global economic cycle,” in the sell-side firm's view. 

Price Action

Shares of Avery Dennison were trading up slightly at $114.08 at the time of publication Monday. 

Related Link: Benzinga's Top Upgrades, Downgrades For March 15, 2019