AVY Avery Dennison
Oligopoly label leader with RFID optionality, priced for zero growth; mid-single-digit compounding beats that comfortably.
The business
Avery Dennison makes pressure-sensitive label materials (facestock, adhesive, liner) that it sells to converters who print the labels for consumer packaged goods, logistics and industrial customers. It also runs a Solutions Group selling apparel branding, tags, embellishments and RFID inlays to retailers and brands. Profits come from scale in materials science and coating, deep relationships with converters, and growing high-value RFID and intelligent-label volumes.
Quality gate · 73/100
Moat & management
| Moat | narrow moat |
| Source | scale |
| Trajectory | stable |
| Management | excellent |
Avery and UPM Raflatac, part of a consolidating oligopoly, hold the top global share in label materials. Scale in coating, global supply chains and a qualified-supplier position with converters keep costs low and customers sticky. The core product is still close to a commodity and pricing follows raw-material cycles, so the moat is real but narrow. RFID leadership adds an intangible edge, though that market is more contested.
Management has a long record of disciplined capital allocation: roughly 20%+ ROTC targets, steady share-count reduction, a growing dividend and bolt-on acquisitions in high-value categories. Leverage near 2.4x is at the high end of their comfort range but manageable.
Owner-earnings inputs
| Owner earnings (TTM) | 847.00M |
| Owner-earnings yield | 6.6% |
| Free-cash-flow yield | 8.1% |
| Growth used (normalized) | 5.5% |
| Market-implied growth (reverse DCF) | -0.2% |
| Terminal growth | 3.0% |
| Discount rate (hurdle) | 9.0% |
Projected owner earnings
| Yr | Owner earnings | Growth | PV |
|---|---|---|---|
| 1 | 893.59M | 5.5% | 819.80M |
| 2 | 940.25M | 5.2% | 791.39M |
| 3 | 986.74M | 4.9% | 761.94M |
| 4 | 1.03B | 4.7% | 731.65M |
| 5 | 1.08B | 4.4% | 700.70M |
| 6 | 1.12B | 4.1% | 669.27M |
| 7 | 1.17B | 3.8% | 637.55M |
| 8 | 1.21B | 3.6% | 605.70M |
| 9 | 1.25B | 3.3% | 573.91M |
| 10 | 1.28B | 3.0% | 542.32M |
Key risks
- Volume destocking and weak consumer packaged-goods demand keep revenue flat, as the -0.7% 5y CAGR shows
- RFID adoption beyond apparel (food, logistics) comes in slower than promised, or competitors push prices down
- Raw-material and pulp cost swings plus sustainability rules on liners and plastics squeeze margins
Catalysts
- RFID expansion into food and logistics (e.g. Kroger/Walmart mandates) brings mix-driven margin gains
- Label volumes recover as destocking ends, while buybacks of about 2% a year boost per-share growth
⚠ maintenance capex ≈ min(capex, D&A), capped at FCF · Price pays for ~-0%/yr owner-earnings growth over 10y (reverse DCF); model credits 6%. · Cheap, but still in a downtrend (down (-2% vs 200-DMA, 6m -1%)) — waiting for the trend to turn before buying (don't catch a falling knife).