Starting the October 5 lightning round of Mad Money, a caller suggested that Avery Dennison Corporation (NYSE:AVY) could benefit from stronger small and midsize businesses heading into 2027. Jim Cramer agreed, as he said:
I’ve always liked it. It sells, it always sells at a reasonable multiple, 16, 17 times earnings. Has very traditional growth. I think you’ve got a winner there. I totally concur with your analysis. Remember, whether it be small or large, if the numbers are good, I’m with it.
Materials Growth Improves the Earnings Picture
Avery Dennison Corporation reported second-quarter revenue of approximately $2.46 billion, up 10.9% year over year, including 7.6% organic growth. Adjusted earnings per share increased 19.4% to $2.89, outpacing revenue growth. The Materials Group supplied much of that momentum. Organic sales increased 9.7%, supported by higher volume and product mix along with pricing, while its adjusted operating margin reached 15.8%. Management’s full-year adjusted EPS outlook was $10.00 – $10.30. However, management estimated that customer inventory stocking contributed roughly half of second-quarter organic sales growth and about $0.25 of EPS, and expects most of that stocking benefit to unwind in the second half.
The valuation was close to Cramer’s description. Avery Dennison trades at approximately 16.1x forward earnings, versus 18.4x for identification-technology company Zebra Technologies and 12.7x for packaging manufacturer Crown Holdings. These are adjacent businesses rather than exact matches, but they place Avery’s multiple between technology-oriented identification products and more traditional packaging exposure. The results strengthen Cramer’s argument, but the bullish case for Avery Dennison was taking shape before this earnings pickup.
Growth Is Uneven Across the Business
The Solutions Group grew more slowly, with organic sales increasing 2.6%. Reported sales declined 0.5% to approximately $667 million, making it important to distinguish fundamental growth from the reported change. Its adjusted operating margin improved, but the division did not match the Materials Group’s sales momentum. That division’s quarterly performance leaves another part of the story open. Avery’s entry among cash-rich stocks explored an intelligent-label initiative whose ambitions extend beyond the latest sales figures.
Cost reductions also involve upfront spending. Avery Dennison Corporation recorded approximately $34 million in restructuring charges during the first half while generating roughly the same amount in pretax restructuring savings. Higher employee-related expenses continued to offset part of the productivity improvement.
The caller’s expectation of stronger small-business activity is an additional possibility, rather than something investors should treat as assured. Sustaining earnings growth still requires healthy demand and continued control of expenses. It previously appeared among low-volatility blue-chip stocks, but the analyst commentary accompanying that selection presented a less settled picture of its operating environment.
A Broader Hedge Fund Following
Insider Monkey’s database tracking 1000+ hedge funds showed 39 hedge funds holding Avery Dennison Corporation in the second quarter, up from 29 in the first. After increasing its position in the stock by 194%, Gotham Asset Management was the company’s largest shareholder with 339,529 shares. Short interest stood at 3.27% of the float. Short positioning was comparatively modest.
Avery Dennison’s appeal is straightforward enough. Recent earnings growth has been stronger than sales growth, and the shares do not carry the valuation of a high-growth technology company. Cramer’s favorable view has support in those results. However, continued progress across both divisions would make the case more convincing.
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