Avery Dennison's Share Price Should Keep Rising With Stronger Bottom Line

Core Viewpoint - Avery Dennison Corporation is experiencing a turnaround in earnings with expectations of double-digit EBITDA and EPS growth in the coming years, despite its share price not being a bargain [4][28]. Company Overview - Avery Dennison is a global materials science and digital identification solutions company, providing a wide range of branding and information solutions [6]. - The company operates through two segments: the Materials Group (69% of net sales) and the Solutions Group (31% of net sales) [6]. - Recent acquisitions include Silver Crystal Group, LG Group, and Thermopatch, costing approximately $231 million [6]. Financial Performance - In Q1 2024, net sales increased by 4% to $2.2 billion, and EPS jumped by 43% to $2.13 [8]. - Full-year 2024 guidance includes EPS of $8.60 - $9.10, significantly higher than the previous year's $6.48 [10]. - The company has a strong balance sheet with total assets of $8.255 billion and total liabilities of $6.051 billion [8]. Growth Prospects - Revenue and EBITDA have shown slow growth over the past decade, but are rebounding after a decline in 2023 [9]. - Analysts expect significant earnings gains this year, with a consensus on double-digit growth in 2025 and 2026 [10][11]. - Intelligent Labels, a suite of IoT technologies, is identified as a key growth driver [11]. Competitive Landscape - Competitors include UPM Raflatac, Lintec Corporation, 3M Company, and Nitto Denko Corporation [7]. - Avery Dennison claims competitive advantages such as technical expertise, scale, and product innovation, reflected in its margins [7]. Profitability Metrics - The company shows strong profitability metrics, with a gross profit margin of 28.01% and a return on common equity of 26.10% [15]. - However, its five-year net income margin lags behind the sector median [15][16]. Dividend Analysis - Avery Dennison has a strong dividend safety grade of A+, with a consistent track record of dividend growth over the past 13 years [18][19]. - The average dividend yield over the past five years is 1.61%, lower than the sector median of 2.09% [19]. Valuation Insights - The stock is considered expensive based on traditional valuation metrics, with a P/E ratio of 25.51 compared to the sector median of 17.38 [23]. - An intrinsic value calculation suggests the stock is fairly valued or slightly undervalued, with a target price of $231.50 [24][25]. Management and Strategy - The company aims for superior value creation through profitable growth and capital discipline, with a focus on emerging markets and innovation [13][28]. - CEO Deon Stander emphasizes growth as a key component of the company's strategy [13].