Company Profile (excerpt from Reuters): Avery Dennison Corporation (Avery Dennison), incorporated on February 23, 1977, is engaged in the production of pressure-sensitive materials and a range of tickets, tags, labels and other converted products. The Company’s segments include Label and Graphic Materials (LGM); Retail Branding and Information Solutions (RBIS), and Industrial and Healthcare Materials (IHM). Some 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. Some materials are sold by it in converted form as tapes and reflective sheeting. The Company 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 the Company markets to retailers, apparel manufacturers, and brand owners. As of December 31, 2016, the Company operated approximately 180 manufacturing and distribution facilities and had operations in over 50 countries.
Downloadable PDF version of this valuation:
ModernGraham Valuation of AVY – January 2019
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 | $8,116,923,152 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 1.00 | 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 | -599.19% | Fail | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 23.58 | Fail | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 7.92 | 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 | 1.00 | Fail | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 2,158.83 | 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
| EPSmg | $3.98 |
| MG Growth Estimate | 11.25% |
| MG Value | $123.25 |
| Opinion | Fairly Valued |
| MG Grade | D+ |
| MG Value based on 3% Growth | $57.66 |
| MG Value based on 0% Growth | $33.80 |
| Market Implied Growth Rate | 7.54% |
| Current Price | $93.75 |
| % of Intrinsic Value | 76.06% |
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 Fairly Valued after growing its EPSmg (normalized earnings) from $2.27 in 2014 to an estimated $3.98 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 7.54% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.
At the time of valuation, further research into Avery Dennison Corp revealed the company was trading above its Graham Number of $38.74. The company pays a dividend of $1.76 per share, for a yield of 1.9% Its PEmg (price over earnings per share – ModernGraham) was 23.58, which was below the industry average of 26.19, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-20.07.
Avery Dennison Corp scores quite poorly in the ModernGraham grading system, with an overall grade of D+.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | -$20.07 |
| Graham Number | $38.74 |
| PEmg | 23.58 |
| Current Ratio | 1.00 |
| PB Ratio | 7.92 |
| Current Dividend | $1.76 |
| Dividend Yield | 1.88% |
| Number of Consecutive Years of Dividend Growth | 7 |
Useful Links:
| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
| Yahoo Finance | Seeking Alpha |
| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Balance Sheet Information | 9/1/2018 |
| Total Current Assets | $2,358,800,000 |
| Total Current Liabilities | $2,358,200,000 |
| Long-Term Debt | $1,295,300,000 |
| Total Assets | $5,181,900,000 |
| Intangible Assets | $1,101,700,000 |
| Total Liabilities | $4,134,800,000 |
| Shares Outstanding (Diluted Average) | 88,500,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | $5.61 |
| Dec2017 | $3.13 |
| Dec2016 | $3.54 |
| Dec2015 | $2.95 |
| Dec2014 | $2.56 |
| Dec2013 | $2.13 |
| Dec2012 | $2.08 |
| Dec2011 | $1.78 |
| Dec2010 | $2.97 |
| Dec2009 | -$7.21 |
| Dec2008 | $2.70 |
| Dec2007 | $3.07 |
| Dec2006 | $3.72 |
| Dec2005 | $2.26 |
| Dec2004 | $2.78 |
| Dec2003 | $2.67 |
| Dec2002 | $2.59 |
| Dec2001 | $2.47 |
| Dec2000 | $2.84 |
| Dec1999 | $2.13 |
| Dec1998 | $2.15 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $3.98 |
| Dec2017 | $3.06 |
| Dec2016 | $2.90 |
| Dec2015 | $2.49 |
| Dec2014 | $2.27 |
| Dec2013 | $1.54 |
| Dec2012 | $0.98 |
| Dec2011 | $0.51 |
| Dec2010 | $0.26 |
| Dec2009 | -$0.42 |
| Dec2008 | $2.95 |
| Dec2007 | $3.02 |
| Dec2006 | $2.93 |
| Dec2005 | $2.54 |
| Dec2004 | $2.68 |
| Dec2003 | $2.60 |
| Dec2002 | $2.52 |
Recommended Reading:
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Disclaimer:
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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