AVY Posts Q2 Beat, Now Faces a Higher Bar

Avery Dennison gained 3.7% last week to $181.83, outpacing the median 1.7% move among its closest packaging peers, while sitting roughly 10% below the analyst consensus target of $199.50. The stock reported Q3 results on October 21 and rose 3.7% on the day, its best single-session earnings reaction in recent history. Wednesday's earnings release, due October 29, now asks whether that momentum can hold.

The borrow market remains almost entirely indifferent to the downside. Availability is effectively uncapped, with more than 75 million shares free to lend against fewer than 2 million actually borrowed, and short interest at 2.5% of the free float is down 18% over the past month. Borrowing costs have climbed 68% week-on-week to 0.39%, still a low absolute level, but the direction is worth noting given costs were at 0.23% when the previous preview was written eight days ago. Options positioning offers no urgency in either direction: the put/call ratio of 0.43 is essentially flat against its 20-day average of 0.43, with a z-score near zero.

The Street is broadly positive but selectively cautious on valuation. Most houses raised targets after the Q2 beat in late July, with UBS lifting to $225 and JPMorgan moving to $190, but Truist trimmed its target marginally to $208 just ahead of the October 21 print, a pattern that has repeated across multiple firms. The bull case rests on RFID-driven EBITDA expansion in the Solutions segment and logistics and food sales that rose roughly 15% last quarter. Bears point to EPS guidance that was revised down before the Q3 print and continued softness in apparel volumes. At 16.5x trailing earnings and 11x EV/EBITDA, both multiples have drifted higher over the past month, which narrows the margin for disappointment.

Among peers, AMCR and PKG each gained around 5% last week, broadly in line with AVY. IP was the clear laggard, falling 2.5% over the same period. AVY's relative outperformance looks tied to its intelligent labels business rather than any sector-wide lift, which also means the October 29 print will be judged more on whether RFID growth and Solutions margins held through the full quarter than on the macro packaging backdrop that weighed on IP.

The October 29 release is therefore a test of whether the momentum from the Q3 beat extends into a second consecutive positive surprise, or whether the guidance cut that preceded that beat already reflected all the bad news.