On Thursday, JPMorgan (NYSE:JPM) adjusted its stance on Avery Dennison (NYSE:AVY) stock, shifting from an Overweight to a Neutral rating. The firm also revised its price target for the stock to $210 from the previous $230. The change in rating comes after Avery Dennison announced a significant Radio-Frequency Identification (RFID) deal with Kroger (NYSE:KR).
Avery Dennison's entry into the expansive food markets was marked by this deal, which Avery's CEO Deon Stander described as a "tipping point" for the company's foray into the food industry. The deal's importance is twofold: it underscores the long-term potential and the more immediate limited opportunity.
The collaboration with Kroger will focus on implementing RFID technology to tag bakery goods individually. This initiative aims to enhance the tracking of product freshness and strategically adjust pricing for items approaching the end of their shelf life. Avery Dennison estimates that once the operation is fully ramped up, the revenue from this deal could reach approximately $38 million annually, assuming a six-quarter ramp-up period and a tag cost of $0.03 per item.
In terms of market size, Avery Dennison assesses the overall RFID/food market opportunity at around $200 billion. This estimate is significantly higher than the $60 billion market for logistics and $45 billion for retail. The food market alone is projected to constitute 55-60% of the total $350 billion RFID market, indicating a substantial growth area for the company.
In other recent news, Avery Dennison Corporation (NYSE:AVY) reported a strong third quarter, surpassing revenue expectations and raising its full-year earnings guidance. The company posted adjusted earnings per share of $2.33, in line with analyst estimates, and revenue of $2.25 billion, which exceeded the consensus forecast of $2.2 billion. The Materials and Solutions Groups both contributed to this growth, with a 4.1% YoY increase in net sales and organic sales growth of 4.3%.
Further highlighting recent developments, Avery Dennison raised its full-year adjusted EPS guidance to a range of $9.35 to $9.50, up from its previous outlook. This adjustment aligns with the analyst consensus of $9.45. The company also continued to return cash to shareholders, repurchasing 0.5 million shares for $108 million in the first nine months of this fiscal year.
Avery Dennison's net debt to adjusted EBITDA ratio was reported at 2.1x at the end of Q3. CEO Deon Stander expressed confidence in the company's strategies, suggesting they will continue to create value for all stakeholders. However, it is important to note that these are recent developments and may be subject to change.
InvestingPro Insights
Avery Dennison's recent RFID deal with Kroger aligns with its strong market position and financial health, as reflected in the latest InvestingPro data. The company's market capitalization stands at $16.72 billion, underscoring its significant presence in the industry. With a P/E ratio of 24.47 over the last twelve months, Avery Dennison is trading at a premium, which could be justified by its growth prospects in the expanding RFID market.
InvestingPro Tips highlight that Avery Dennison has maintained dividend payments for 54 consecutive years and has raised its dividend for 13 consecutive years. This consistent dividend history suggests financial stability and a commitment to shareholder returns, which could be attractive to investors considering the company's expansion into the food RFID market.
The company's revenue growth of 6.93% in the most recent quarter indicates positive momentum, potentially fueled by strategic moves like the Kroger deal. Additionally, an EBITDA growth of 16.69% over the last twelve months points to improving operational efficiency, which could be crucial as Avery Dennison scales its RFID operations in the food industry.
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