Follow me for a second here and I give you the background for my thinking on this one. It’s not exactly the butterfly effect but you do have to connect the dots a little bit to get to this. First, I think that the world economy, specifically in the US, is doing better and will continue to improve. As a result, more and more products are going to be sold worldwide. A large percentage of these products are going to be smaller, everyday use type products. Think about the things that you’re buying at the CVS (CVS – Analyst Report).
Today’s Bull of the Day isn’t the company that’s manufacturing the products you’re going to buy nor is it any of the distribution partners getting the goods to the stores. Today I’m talking all about the label makers for those products. Somebody has to make those products catch your eye and look attractive. This Zacks Rank #1(Strong Buy) company is a global label solution company, Multi-Color (LABL – Snapshot Report).
The global label market totals about $30 billion in annual sales. This market is forecast to grow at about 5% a year per annum into 2017. It’s a highly fragmented market offering significant consolidation opportunities. Given the consumer staple focus of a company like Multi-Color, it lowers their risk to economic cycles.
The company believes there is increasing importance of labels in generating consumer interest and influencing purchasing decisions. With more and more competition out there, making an interesting label that is eye-catching leads to more sales. Especially given the relatively homogenous products in the consumer staples space. I mean, how much different is one brand of baby powder from another?
There are increased product information and disclosure requirements nowadays and a greater concern over product safety and security. This all leads to companies spending more money to get a quality label placed on their product. With the onset of big data, there’s also increased demand for tracking systems facilitated by labels. Tracking supply trends can help reduce inventory, saving companies money in the long run.
Recently, analysts have jacked up their earnings estimates for the current quarter and the current year. The revisions have pushed the Zacks Consensus Estimate up from 71 cents to 83 cents for the current quarter and up from $2.80 all the way to $3.13. That’s a big reason for the favorable Zacks Rank.
Another big reason is the recent earnings surprises to the upside. Over the previous four quarters, LABL has surprised by an average of 16 cents or 25.52%. The most recent earnings beat for Q4 2014 came in at 73 cents versus consensus estimates for 60 cents.
The stock has been in go-mode since the start of the year. After trading down in the low $50s, a rally through the middle of January faded a bit just for the bulls to catch their breath. After the brief dip to start February the stock marched all the way above $72. The rough couple of sessions in this market helped push the price back down to the $67 range. This looks like a great opportunity to jump back in the direction of the longer term bull trend with the CCI nearly oversold at this level.