Avery Dennison Corp Valuation – June 2016 $AVY

Benjamin 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 10 Companies Benjamin Graham Would Invest In Today - June 2016.  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 stock analysis showing a specific look at how Avery Dennison Corp (AVY) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Avery Dennison Corporation (Avery Dennison) is engaged in the production of pressure-sensitive materials and a range of tickets, tags, labels and other converted products. The Company’s pressure-sensitive materials are sold to label printers and converters that convert the materials into labels and other products through embossing, printing, stamping and die-cutting. The Company’s operational segments include Pressure-sensitive Materials (PSM), Retail Branding and Information Solutions (RBIS), and Vancive Medical Technologies (Vancive). It also sells pressure-sensitive materials in converted form as tapes and reflective sheeting. It also manufactures and sells a range of other converted products and items not involving pressure-sensitive components, such as fasteners, tickets, tags, radio-frequency identification (RFID) inlays and tags, and imprinting equipment and related services, which it markets to retailers, and apparel manufacturers and brand owners.


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Downloadable PDF version of this valuation:

ModernGraham Valuation of AVY – June 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $6,267,184,330 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.18 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -748.82% Fail
6. Moderate PEmg Ratio PEmg < 20 24.59 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 6.93 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.18 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.29 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

AVY value Chart June 2016

EPSmg $2.99
MG Growth Estimate 15.00%
MG Value $115.24
Opinion Undervalued
MG Grade C-
MG Value based on 3% Growth $43.40
MG Value based on 0% Growth $25.44
Market Implied Growth Rate 8.05%
Current Price $73.62
% of Intrinsic Value 63.88%

Avery Dennison Corp does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $0.98 in 2012 to an estimated $2.99 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 8.05% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

Avery Dennison Corp receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

AVY Charts June 2016

Net Current Asset Value (NCAV) -$15.30
Graham Number $30.37
PEmg 24.59
Current Ratio 1.18
PB Ratio 6.93
Current Dividend $1.48
Dividend Yield 2.01%
Number of Consecutive Years of Dividend Growth 6


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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $1,887,400,000
Total Current Liabilities $1,594,200,000
Long-Term Debt $963,300,000
Total Assets $4,249,400,000
Intangible Assets $736,400,000
Total Liabilities $3,281,100,000
Shares Outstanding (Diluted Average) 91,100,000

Earnings Per Share History

Next Fiscal Year Estimate $3.78
Dec2015 $2.95
Dec2014 $2.60
Dec2013 $2.16
Dec2012 $2.08
Dec2011 $1.78
Dec2010 $2.97
Dec2009 -$7.21
Dec2008 $2.70
Dec2007 $3.07
Dec2006 $3.66
Dec2005 $2.25
Dec2004 $2.78
Dec2003 $2.68
Dec2002 $2.59
Dec2001 $2.47
Dec2000 $2.84
Dec1999 $2.13
Dec1998 $2.15
Dec1997 $1.93
Dec1996 $1.62

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.99
Dec2015 $2.50
Dec2014 $2.29
Dec2013 $1.55
Dec2012 $0.98
Dec2011 $0.51
Dec2010 $0.26
Dec2009 -$0.43
Dec2008 $2.94
Dec2007 $3.00
Dec2006 $2.91
Dec2005 $2.54
Dec2004 $2.68
Dec2003 $2.60
Dec2002 $2.52
Dec2001 $2.42
Dec2000 $2.31

Recommended Reading:

Other ModernGraham posts about the company

Avery Dennison Corporation Annual Valuation – 2015 $AVY
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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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