Intrinsic value of Avery Dennison Corporation - AVY

Previous Close

$113.37

  Intrinsic Value

$67.60

stock screener

  Rating & Target

sell

-40%

Previous close

$113.37

 
Intrinsic value

$67.60

 
Up/down potential

-40%

 
Rating

sell

We calculate the intrinsic value of AVY stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 9.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  7,302
  7,470
  7,662
  7,878
  8,116
  8,379
  8,664
  8,973
  9,306
  9,663
  10,045
  10,452
  10,886
  11,348
  11,837
  12,356
  12,905
  13,486
  14,099
  14,747
  15,431
  16,152
  16,911
  17,712
  18,555
  19,443
  20,378
  21,361
  22,395
  23,484
Variable operating expenses, $m
  6,212
  6,352
  6,513
  6,693
  6,893
  7,112
  7,350
  7,608
  7,886
  8,185
  8,396
  8,736
  9,099
  9,485
  9,894
  10,327
  10,786
  11,272
  11,785
  12,326
  12,897
  13,500
  14,135
  14,804
  15,509
  16,251
  17,032
  17,854
  18,719
  19,628
Fixed operating expenses, $m
  288
  295
  301
  308
  314
  321
  328
  336
  343
  351
  358
  366
  374
  382
  391
  399
  408
  417
  426
  436
  445
  455
  465
  475
  486
  497
  507
  519
  530
  542
Total operating expenses, $m
  6,500
  6,647
  6,814
  7,001
  7,207
  7,433
  7,678
  7,944
  8,229
  8,536
  8,754
  9,102
  9,473
  9,867
  10,285
  10,726
  11,194
  11,689
  12,211
  12,762
  13,342
  13,955
  14,600
  15,279
  15,995
  16,748
  17,539
  18,373
  19,249
  20,170
Operating income, $m
  802
  823
  848
  877
  909
  946
  985
  1,029
  1,076
  1,127
  1,291
  1,350
  1,413
  1,481
  1,552
  1,629
  1,710
  1,797
  1,888
  1,985
  2,088
  2,196
  2,311
  2,432
  2,560
  2,695
  2,838
  2,988
  3,147
  3,314
EBITDA, $m
  1,048
  1,073
  1,101
  1,134
  1,171
  1,212
  1,257
  1,307
  1,360
  1,418
  1,480
  1,547
  1,618
  1,695
  1,776
  1,862
  1,954
  2,051
  2,154
  2,264
  2,379
  2,501
  2,630
  2,767
  2,911
  3,062
  3,222
  3,391
  3,569
  3,757
Interest expense (income), $m
  59
  106
  111
  116
  122
  129
  137
  145
  154
  164
  175
  186
  198
  211
  225
  240
  255
  272
  289
  308
  327
  348
  370
  393
  417
  442
  469
  498
  527
  559
  592
Earnings before tax, $m
  696
  712
  732
  755
  780
  809
  840
  875
  912
  953
  1,105
  1,152
  1,202
  1,255
  1,313
  1,374
  1,439
  1,507
  1,580
  1,658
  1,740
  1,827
  1,918
  2,015
  2,118
  2,226
  2,340
  2,461
  2,588
  2,722
Tax expense, $m
  188
  192
  198
  204
  211
  218
  227
  236
  246
  257
  298
  311
  324
  339
  354
  371
  388
  407
  427
  448
  470
  493
  518
  544
  572
  601
  632
  664
  699
  735
Net income, $m
  508
  520
  534
  551
  570
  590
  613
  638
  666
  695
  806
  841
  877
  917
  958
  1,003
  1,050
  1,100
  1,154
  1,210
  1,270
  1,333
  1,400
  1,471
  1,546
  1,625
  1,708
  1,796
  1,889
  1,987

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  5,280
  5,401
  5,540
  5,696
  5,869
  6,058
  6,265
  6,488
  6,728
  6,987
  7,263
  7,558
  7,872
  8,205
  8,559
  8,934
  9,331
  9,751
  10,195
  10,663
  11,157
  11,679
  12,228
  12,807
  13,417
  14,059
  14,734
  15,445
  16,193
  16,980
Adjusted assets (=assets-cash), $m
  5,280
  5,401
  5,540
  5,696
  5,869
  6,058
  6,265
  6,488
  6,728
  6,987
  7,263
  7,558
  7,872
  8,205
  8,559
  8,934
  9,331
  9,751
  10,195
  10,663
  11,157
  11,679
  12,228
  12,807
  13,417
  14,059
  14,734
  15,445
  16,193
  16,980
Revenue / Adjusted assets
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
Average production assets, $m
  1,709
  1,748
  1,793
  1,843
  1,899
  1,961
  2,027
  2,100
  2,177
  2,261
  2,350
  2,446
  2,547
  2,655
  2,770
  2,891
  3,020
  3,156
  3,299
  3,451
  3,611
  3,779
  3,957
  4,145
  4,342
  4,550
  4,768
  4,998
  5,241
  5,495
Working capital, $m
  270
  276
  283
  291
  300
  310
  321
  332
  344
  358
  372
  387
  403
  420
  438
  457
  477
  499
  522
  546
  571
  598
  626
  655
  687
  719
  754
  790
  829
  869
Total debt, $m
  2,052
  2,151
  2,265
  2,392
  2,533
  2,687
  2,856
  3,038
  3,234
  3,445
  3,670
  3,911
  4,167
  4,439
  4,728
  5,034
  5,358
  5,701
  6,063
  6,445
  6,848
  7,274
  7,722
  8,194
  8,692
  9,216
  9,767
  10,347
  10,958
  11,600
Total liabilities, $m
  4,308
  4,408
  4,521
  4,648
  4,789
  4,944
  5,112
  5,294
  5,490
  5,701
  5,927
  6,167
  6,423
  6,695
  6,984
  7,290
  7,614
  7,957
  8,319
  8,701
  9,104
  9,530
  9,978
  10,451
  10,948
  11,472
  12,023
  12,603
  13,214
  13,856
Total equity, $m
  972
  994
  1,019
  1,048
  1,080
  1,115
  1,153
  1,194
  1,238
  1,286
  1,336
  1,391
  1,448
  1,510
  1,575
  1,644
  1,717
  1,794
  1,876
  1,962
  2,053
  2,149
  2,250
  2,356
  2,469
  2,587
  2,711
  2,842
  2,980
  3,124
Total liabilities and equity, $m
  5,280
  5,402
  5,540
  5,696
  5,869
  6,059
  6,265
  6,488
  6,728
  6,987
  7,263
  7,558
  7,871
  8,205
  8,559
  8,934
  9,331
  9,751
  10,195
  10,663
  11,157
  11,679
  12,228
  12,807
  13,417
  14,059
  14,734
  15,445
  16,194
  16,980
Debt-to-equity ratio
  2.110
  2.160
  2.220
  2.280
  2.350
  2.410
  2.480
  2.540
  2.610
  2.680
  2.750
  2.810
  2.880
  2.940
  3.000
  3.060
  3.120
  3.180
  3.230
  3.280
  3.340
  3.380
  3.430
  3.480
  3.520
  3.560
  3.600
  3.640
  3.680
  3.710
Adjusted equity ratio
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  508
  520
  534
  551
  570
  590
  613
  638
  666
  695
  806
  841
  877
  917
  958
  1,003
  1,050
  1,100
  1,154
  1,210
  1,270
  1,333
  1,400
  1,471
  1,546
  1,625
  1,708
  1,796
  1,889
  1,987
Depreciation, amort., depletion, $m
  246
  250
  253
  257
  262
  267
  272
  278
  284
  291
  190
  197
  205
  214
  223
  233
  244
  254
  266
  278
  291
  305
  319
  334
  350
  367
  385
  403
  423
  443
Funds from operations, $m
  754
  770
  788
  808
  831
  857
  885
  916
  950
  986
  996
  1,038
  1,083
  1,131
  1,182
  1,236
  1,294
  1,355
  1,420
  1,489
  1,561
  1,638
  1,720
  1,805
  1,896
  1,992
  2,093
  2,199
  2,312
  2,430
Change in working capital, $m
  5
  6
  7
  8
  9
  10
  11
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  23
  24
  25
  27
  28
  30
  31
  33
  35
  36
  38
  40
Cash from operations, $m
  749
  763
  781
  800
  823
  847
  875
  905
  938
  973
  982
  1,023
  1,067
  1,114
  1,164
  1,217
  1,273
  1,333
  1,397
  1,465
  1,536
  1,612
  1,691
  1,776
  1,865
  1,959
  2,058
  2,163
  2,273
  2,390
Maintenance CAPEX, $m
  -135
  -138
  -141
  -145
  -149
  -153
  -158
  -163
  -169
  -176
  -182
  -190
  -197
  -205
  -214
  -223
  -233
  -244
  -254
  -266
  -278
  -291
  -305
  -319
  -334
  -350
  -367
  -385
  -403
  -423
New CAPEX, $m
  -32
  -39
  -45
  -50
  -56
  -61
  -67
  -72
  -78
  -84
  -89
  -95
  -102
  -108
  -115
  -121
  -128
  -136
  -144
  -152
  -160
  -169
  -178
  -187
  -197
  -208
  -219
  -230
  -242
  -255
Cash from investing activities, $m
  -167
  -177
  -186
  -195
  -205
  -214
  -225
  -235
  -247
  -260
  -271
  -285
  -299
  -313
  -329
  -344
  -361
  -380
  -398
  -418
  -438
  -460
  -483
  -506
  -531
  -558
  -586
  -615
  -645
  -678
Free cash flow, $m
  582
  586
  595
  605
  618
  633
  650
  669
  690
  714
  710
  738
  768
  800
  835
  872
  912
  954
  999
  1,047
  1,098
  1,152
  1,209
  1,269
  1,333
  1,401
  1,473
  1,548
  1,628
  1,713
Issuance/(repayment) of debt, $m
  86
  99
  113
  127
  141
  155
  168
  182
  196
  211
  225
  241
  256
  272
  289
  306
  324
  343
  362
  382
  403
  425
  448
  472
  498
  524
  551
  580
  610
  642
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  86
  99
  113
  127
  141
  155
  168
  182
  196
  211
  225
  241
  256
  272
  289
  306
  324
  343
  362
  382
  403
  425
  448
  472
  498
  524
  551
  580
  610
  642
Total cash flow (excl. dividends), $m
  668
  685
  708
  732
  759
  788
  818
  851
  887
  925
  936
  978
  1,024
  1,072
  1,124
  1,178
  1,236
  1,297
  1,361
  1,429
  1,501
  1,577
  1,657
  1,742
  1,831
  1,925
  2,024
  2,129
  2,239
  2,355
Retained Cash Flow (-), $m
  -16
  -22
  -26
  -29
  -32
  -35
  -38
  -41
  -44
  -48
  -51
  -54
  -58
  -61
  -65
  -69
  -73
  -77
  -82
  -86
  -91
  -96
  -101
  -107
  -112
  -118
  -124
  -131
  -138
  -145
Prev. year cash balance distribution, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  652
  663
  682
  704
  727
  753
  780
  810
  843
  877
  885
  924
  966
  1,011
  1,059
  1,109
  1,163
  1,219
  1,279
  1,343
  1,410
  1,481
  1,556
  1,635
  1,719
  1,807
  1,900
  1,998
  2,101
  2,210
Discount rate, %
  7.90
  8.30
  8.71
  9.15
  9.60
  10.08
  10.59
  11.12
  11.67
  12.26
  12.87
  13.51
  14.19
  14.90
  15.64
  16.42
  17.24
  18.11
  19.01
  19.96
  20.96
  22.01
  23.11
  24.27
  25.48
  26.75
  28.09
  29.49
  30.97
  32.52
PV of cash for distribution, $m
  604
  565
  531
  496
  460
  423
  386
  349
  312
  276
  234
  202
  172
  145
  120
  97
  78
  61
  47
  35
  26
  19
  13
  9
  6
  4
  2
  1
  1
  0
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

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 segments include Label and Graphic Materials (LGM); Retail Branding and Information Solutions (RBIS), and Industrial and Healthcare Materials (IHM). The Company's LGM segment manufactures and sells Fasson-, JAC-, and Avery Dennison-brand pressure-sensitive label and packaging materials, Avery Dennison- and Mactac-brand graphics, and Avery Dennison-brand reflective products. The Company's RBIS segment 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. The Company's IHM segment manufactures and sells Fasson-brand and Avery Dennison-brand tapes and fasteners, Vancive-brand medical pressure-sensitive adhesive (PSA) based materials and products, and performance polymers.

FINANCIAL RATIOS  of  Avery Dennison Corporation (AVY)

Valuation Ratios
P/E Ratio 31.2
Price to Sales 1.6
Price to Book 10.8
Price to Tangible Book
Price to Cash Flow 17.1
Price to Free Cash Flow 26.5
Growth Rates
Sales Growth Rate 2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 36.2%
Cap. Spend. - 3 Yr. Gr. Rate 2.7%
Financial Strength
Quick Ratio 0
Current Ratio 0.1
LT Debt to Equity 77.1%
Total Debt to Equity 139.6%
Interest Coverage 9
Management Effectiveness
Return On Assets 8.5%
Ret/ On Assets - 3 Yr. Avg. 7.4%
Return On Total Capital 15.1%
Ret/ On T. Cap. - 3 Yr. Avg. 12.8%
Return On Equity 33.9%
Return On Equity - 3 Yr. Avg. 26.8%
Asset Turnover 1.4
Profitability Ratios
Gross Margin 27.9%
Gross Margin - 3 Yr. Avg. 27.2%
EBITDA Margin 11.8%
EBITDA Margin - 3 Yr. Avg. 10.9%
Operating Margin 7.9%
Oper. Margin - 3 Yr. Avg. 6.8%
Pre-Tax Margin 7.8%
Pre-Tax Margin - 3 Yr. Avg. 6.8%
Net Profit Margin 5.3%
Net Profit Margin - 3 Yr. Avg. 4.6%
Effective Tax Rate 32.7%
Eff/ Tax Rate - 3 Yr. Avg. 32.4%
Payout Ratio 44.5%

AVY stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AVY stock intrinsic value calculation we used $7159 million for the last fiscal year's total revenue generated by Avery Dennison Corporation. The default revenue input number comes from 0001 income statement of Avery Dennison Corporation. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our AVY stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 7.9%, whose default value for AVY is calculated based on our internal credit rating of Avery Dennison Corporation, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Avery Dennison Corporation.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of AVY stock the variable cost ratio is equal to 85.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $282 million in the base year in the intrinsic value calculation for AVY stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for Avery Dennison Corporation.

Corporate tax rate of 27% is the nominal tax rate for Avery Dennison Corporation. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the AVY stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for AVY are equal to 23.4%.

Life of production assets of 12.4 years is the average useful life of capital assets used in Avery Dennison Corporation operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for AVY is equal to 3.7%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $955.1 million for Avery Dennison Corporation - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 83.931 million for Avery Dennison Corporation is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Avery Dennison Corporation at the current share price and the inputted number of shares is $9.5 billion.

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