Ahead of the Bell: Avery Dennison shares upgraded

NEW YORK — Avery Dennison Corp. is cutting costs, reducing debt and improving cash flow, an analyst said Friday as he upgraded shares of the adhesive label maker and office supplies provider.

Baird analyst Ghansham Panjabi upgraded the shares to “Neutral” from “Underperform” and boosted the price target to $36 from $28 on expectations that recent developments will entice investors.

“While Avery Dennison management faces an elongated path towards improving credibility with the Street, we believe that an improving macroeconomic environment, coupled with an aggressive cost reduction program and injection of free cash flow via a dividend cut could help shift sentiment on the shares,” Panjabi wrote in a client note.

Additionally, prices for pressure-sensitive materials, which comprise more than half the Avery Dennison’s sales, are on a path of modest but long-term increase, the analyst said.

“Given our ‘Neutral’ rating on the shares, a sharp and prolonged upward movement in volumes combined with successful cost cutting initiatives could unleash significant operating leverage on the earnings-per-share line — resulting in the likely outperformance of the shares,” he said.

Shares closed up 58 cents to $31.90 on Thursday.