Avery Dennison Corporation Annual Valuation – 2015 $AVY

220px-Averydennison.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – December 2014.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Avery Dennison (AVY) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Avery Dennison Corporation is engaged in the production of pressure-sensitive materials, and a range of tickets, tags, labels and other converted products. It operates in two segments: Pressure-sensitive Materials (PSM), which manufactures and sells Fasson -, JAC -, and Avery Dennison-brand pressure-sensitive label and packaging materials, Avery Dennison-brand graphics and graphic films, Avery Dennison-brand reflective products, Avery Dennison-brand tapes, and performance polymers (largely used to manufacture pressure-sensitive materials), and Retail Branding and Information Solutions (RBIS), which designs, manufactures and sells a range of branding and information solutions to retailers, brand owners, apparel manufacturers, distributors and industrial customers on a global basis. In addition to its segments, the Company’s other specialty converting businesses includes Vancive Medical Technologies (Vancive), a producer of medical products and solutions.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 2/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years - FAIL
  4. Dividend Record – has paid a dividend for at least 10 straight years - PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 - FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 - FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 - FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend - PASS
  5. Earnings growth – EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price $52.58
MG Value $94.61
MG Opinion Undervalued
Value Based on 3% Growth $35.63
Value Based on 0% Growth $20.89
Market Implied Growth Rate 6.45%
Net Current Asset Value (NCAV) -$11.73
PEmg 21.40
Current Ratio 1.27
PB Ratio 3.83

Balance Sheet – September 2014

Current Assets $2,070,000,000
Current Liabilities $1,633,000,000
Total Debt $945,000,000
Total Assets $4,494,000,000
Intangible Assets $816,000,000
Total Liabilities $3,187,000,000
Outstanding Shares 95,200,000

Earnings Per Share

2014 (estimate) $3.09
2013 $2.16
2012 $2.08
2011 $1.78
2010 $2.97
2009 -$7.21
2008 $2.70
2007 $3.07
2006 $3.72
2005 $2.26
2004 $2.78

Earnings Per Share – ModernGraham

2014 (estimate) $2.46
2013 $1.55
2012 $0.98
2011 $0.51
2010 $0.26
2009 -$0.42

Dividend History


Avery Dennison is not suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio, lack of earnings stability or growth over the last ten years, as well as the poor PEmg and PB ratios.  The Enterprising Investor is concerned with the level of debt relative to the net current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities.  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.26 in 2010 to an estimated $2.46 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 6.45% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.

Be sure to check out previous ModernGraham valuations of Avery Dennison (AVY) for greater perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Avery Dennison (AVY)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Avery Dennison (AVY) at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.






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