DCF Studio

    AVY · NYQ · Consumer Cyclical

    Avery Dennison Corporation

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 119.47

    Market price

    USD 167.71

    Implied upside

    -28.8%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    Value Per Share

    Perpetuity growth
    USD 119.47-28.8%
    Exit multiple
    USD 136.36-18.7%
    Market price
    USD 167.71

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0m466m931mFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 8.8bnUSD 8.7bnUSD 8.7bnUSD 8.6bnUSD 8.6bn-0.7%
    EBITUSD 1.1bnUSD 1.1bnUSD 1.1bnUSD 1.1bnUSD 1.0bn-0.7%
    NOPATUSD 848.1mUSD 842.4mUSD 836.6mUSD 830.9mUSD 825.2m-0.7%
    Add depreciation & amortisationUSD 309.0mUSD 306.9mUSD 304.8mUSD 302.8mUSD 300.7m-0.7%
    Less capital expenditureUSD -257.5mUSD -255.8mUSD -254.0mUSD -252.3mUSD -250.6m-0.7%
    Less increase in working capitalUSD 31.4mUSD 31.1mUSD 30.9mUSD 30.7mUSD 30.5m+0.7%
    Free cashflow to firmUSD 931.0mUSD 924.7mUSD 918.3mUSD 912.1mUSD 905.9m-0.7%
    Discount factor0.96010.88500.81590.75210.6933-
    Present valueUSD 893.9mUSD 818.4mUSD 749.2mUSD 685.9mUSD 628.0m-8.4%
    Present Value Of The ForecastUSD 3.8bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.875Reported 0.814, pulled toward 1.0 (Blume)
    Cost of equity9.81%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 12.7bn77.3% of capital
    Total debtUSD 3.7bn22.7% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC8.48%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 119.47

    71% of EV

    Forecast FCFF, final year
    USD 905.9m
    Capex at depreciation, working capital in reinvestment
    USD 914.3m
    Less reinvestment at g/ROIC (16.1% of NOPAT)
    USD -147.5m
    Capitalised
    USD 766.8m
    ROIC (reported)
    15.5%
    Terminal value, undiscounted
    USD 13.1bn
    Terminal value, discounted
    USD 9.1bn
    Enterprise value
    USD 12.9bn
    Less net debt
    USD 3.5bn
    Equity value
    USD 9.4bn

    Exit at 11.2x EBITDA

    Value per shareUSD 136.36

    73% of EV

    Terminal value, undiscounted
    USD 15.0bn
    Terminal value, discounted
    USD 10.4bn
    Enterprise value
    USD 14.2bn
    Less net debt
    USD 3.5bn
    Equity value
    USD 10.7bn

    Spread between methods: 13%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    6.48%167.27179.77195.33215.28241.83
    7.48%133.54140.96149.83160.60174.02
    8.48%109.43114.09119.47125.79133.33
    9.48%91.3494.3597.76101.66106.17
    10.48%77.2579.2481.4583.9286.71

    Outlined: this model. Green text: above today's price of 167.71. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year-0.7%7.8%+8.5pp
    EBIT margin12.2%16.2%+4.0pp
    Discount rate8.5%7.0%-1.4pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.