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Avery Dennison (AVY) Wraps Up Vestcom Acquisition for $1.45B

Avery Dennison's (AVY) latest buyout will expand its foothold in high value product categories and is likely to be accretive to its earnings per share...

This story originally appeared on Zacks

Avery Dennison Corporation AVY recently announced that it has completed the Vestcom buyout for cash payment of $1.45 billion. This acquisition will not only expand the company’s presence in high value product categories but also add channel access and data-management capabilities to the Retail Branding and Information Solutions (RBIS) segment and helpadvance its Intelligent Labels strategy. The buyout is likely to be accretive to Avery Dennison’s earnings per share (EPS), net of purchase accounting amortization and financing costs in 2022.

Based in Little Rock, AR, Vestcom is a leading provider of retail shelf-edge pricing, productivity and branded labeling solutions for retailers and consumer packaged goods companies. The company uses advanced data management capabilities to create and streamline store-level data and deliver item-specific, price-integrated messaging at the shopper’s point of decision. Vestcom is a high-growth, high-margin business that generates annual revenues of roughly $400 million.

Vestcom is a strategic fit for Avery Dennison’s RBIS segment with a strong long-term market leading customer base. The buyout supports RBIS’ strategy in delivering outsized growth in high-value categories, unlocking growth in food and logistics, improving profitably in the base business, and strengthening digital capabilities and solutions. Together Vestcom and Avery Dennison’s solutions will complement the latter’s strategy to enhance Intelligent Labels adoption beyond apparel.

Previously, Avery Dennison acquired a small software start-up, ZippyYum, and launched a Connected Product Cloud Platform start-up, atma.io, in a bid to accelerate investments in digital capabilities and solutions. The company will benefit from its rapidly-growing high-value product categories, such as Intelligent Labels, Radio-frequency identification (RFID) and core apparel label business as retailers and brands gear up for a solid rebound in end-market demand, backed by double-digit growth in external embellishments. These factors are likely to drive the RBIS segment.

The company’s Label and Graphic Materials segment will benefit from solid top-line growth and margin expansion, volume improvement, focus on high-value categories led by specialty labels, contributions from productivity initiatives, and pandemic-driven demand for essential products. Over the long run, increasing demand from emerging markets on the back of rising middle class, and the consequent surge in demand for packaged goods and shift in labelling technology to pressure-sensitive materials will fuel the company’s growth.

Avery Dennison projects earnings per share between $8.65 and $8.95 in 2021, up from the prior guidance of $8.40-$8.80.

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Price Performance

Avery Dennison’s shares have gained 46.7% so far this year, outperforming the industry’s growth of 33.9%.

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Zacks Rank & Stocks to Consider

Avery Dennison currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Industrial Products sector include Encore Wire Corporation WIRE, Terex Corporation TEX and Lincoln Electric Holdings, Inc. LECO. While Encore Wire and Terex sport a Zacks Rank #1 (Strong Buy), Lincoln Electric carries a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Encore Wire has a projected earnings growth rate of 332.6% for fiscal 2021. So far this year, the company’s shares have gained 45%.

Terex has an estimated earnings growth rate of 2,207.6% for 2021. The company’s shares have gained 47.4% so far this year.

Lincoln Electric has an expected earnings growth rate of 45.1% for 2021. The stock has appreciated 22%, year to date.

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