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AVY (Avery Dennison) Earnings Power Value (EPV) : $70.80 (As of Sep24)


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What is Avery Dennison Earnings Power Value (EPV)?

As of Sep24, Avery Dennison's earnings power value is $70.80. *

* GuruFocus does not store EPV value into our database if Average Maintenance CAPEX is 0.

Margin of Safety is -175.62

The basic concept of EPV is that one should value a stock based on the current free cash flow of a company and not on future projections which may, or may not, come true. It is arguably a better way to analyze stocks than Discounted Cash Flow analysis that relies on highly speculative growth assumptions many years into the future. Assumption: Current profitability is sustainable.


Avery Dennison Earnings Power Value (EPV) Historical Data

The historical data trend for Avery Dennison's Earnings Power Value (EPV) can be seen below:

* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.

* Premium members only.

Avery Dennison Earnings Power Value (EPV) Chart

Avery Dennison Annual Data
Trend Dec14 Dec15 Dec16 Dec17 Dec18 Dec19 Dec20 Dec21 Dec22 Dec23
Earnings Power Value (EPV)
Get a 7-Day Free Trial Premium Member Only Premium Member Only 46.77 52.65 50.01 62.32 61.77

Avery Dennison Quarterly Data
Dec19 Mar20 Jun20 Sep20 Dec20 Mar21 Jun21 Sep21 Dec21 Mar22 Jun22 Sep22 Dec22 Mar23 Jun23 Sep23 Dec23 Mar24 Jun24 Sep24
Earnings Power Value (EPV) Get a 7-Day Free Trial Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only 61.66 61.77 65.23 67.73 70.80

Competitive Comparison of Avery Dennison's Earnings Power Value (EPV)

For the Packaging & Containers subindustry, Avery Dennison's Earnings Power Value (EPV), along with its competitors' market caps and Earnings Power Value (EPV) data, can be viewed below:

* Competitive companies are chosen from companies within the same industry, with headquarter located in same country, with closest market capitalization; x-axis shows the market cap, and y-axis shows the term value; the bigger the dot, the larger the market cap. Note that "N/A" values will not show up in the chart.


Avery Dennison's Earnings Power Value (EPV) Distribution in the Packaging & Containers Industry

For the Packaging & Containers industry and Consumer Cyclical sector, Avery Dennison's Earnings Power Value (EPV) distribution charts can be found below:

* The bar in red indicates where Avery Dennison's Earnings Power Value (EPV) falls into.



Avery Dennison Earnings Power Value (EPV) Calculation

Earnings Power Value also known as just Earnings Power is a valuation technique popularised by Bruce Greenwald, an authority on value investing at Columbia University. It is arguably a better way to analyze stocks than Discounted Cash Flow analysis that relies on highly speculative growth assumptions many years into the future.

The basic concept of EPV is that one should value a stock based on the current free cash flow of a company and not on future projections which may, or may not, come true. This valuation tool excludes the potential growth that a company may have so that needs to be looked at separately. Since future growth is excluded from the analysis, only the maintenance capital expenditures are subtracted from after-tax EBIT (earnings before interest and taxes) and growth capex is ignored.

Avery Dennison's "Earning Power" Calculation:

Average of Last 20 Quarters Last Quarter
Revenue 8,225
DDA 264
Operating Margin % 12.16
SGA * 25% 295
Tax Rate % 24.10
Maintenance Capex 235
Cash and Cash Equivalents 213
Short-Term Debt 1,117
Long-Term Debt 2,042
Shares Outstanding (Diluted) 81

1. Start with "Earnings" not including accounting adjustments (one-time charges not excluded unless policy has changed). "Earnings" are "Operating Income.

2. Look at average margins over a business/Industry cycle: Average Operating Margin = 12.16%

To normalize margins and eliminate the effects on profitability of valuing the firm at different points in the business cycle, it is usually best to take a long-term average of operating margins. Ideally this would be as long as 10 years and include at least one economic downturn. However, since most of companies do not have as long as 10-year history, here GuruFocus uses the latest 5 years data to do the calculation. To smooth out unusual years but reflect recent developments, we take an average of the 5 year margin.

3. Multiply average margins by sustainable revenues and then adjust for maintenance SGA. This yields "normalized" EBIT:

To be conservative, GuruFocus uses an average of the 5 year revenues as the sustainable revenue.
EPV analysis recognises that part of SG&A expenditure is made to maintain and replace the existing assets, while part is made to grow sales. Since EPV is only interested in what it costs a going concern to maintain its existing asset base, it adds back a percentage of SG&A (between 15% and 50% - this is a matter of judgment and industry knowledge) to make up for the fact that some of this expenditure went to fund growth and shouldn't be accounted for. To start off, we assume 25% for the sake of prudence.
Sustainable Revenue = $8,225 Mil, Average Operating Margin = 12.16%, Average Adjusted SGA = 295,
therefore "Normalized" EBIT = Sustainable Revenue * Average Operating Margin + Average Adjusted SGA = 8,225 * 12.16% +295 = $1295.1087319 Mil.

4. Multiply by one minus Average Tax Rate (NOPAT):

Same as average operating margin calculation, GuruFocus takes an average of the 5 years tax rates.
Average Tax Rate = 24.10%, and "Normalized" EBIT = $1295.1087319 Mil,
therefore After-tax "Normalized" EBIT = "Normalized" EBIT * ( 1 - Average Tax Rate ) = 1295.1087319 * ( 1 - 24.10% ) = $983.04580740504 Mil.

5. Add back Excess Depreciation (after tax at 1/2 average tax rate). This yields "normalized" Earnings:

Excess Depreciation = Average DDA * % of Excess Depreciation (after tax at 1/2 average tax rate) = 264 * 0.5 * 24.10% = $31.76027855 Mil.
"Normalized" Earnings = After-tax "Normalized" EBIT + Excess Depreciation = 983.04580740504 + 31.76027855 = $1014.806085955 Mil.

6. Adjusted for Maintenance Capital Expenditure:

First, calculate the revenue change regarding to the previous year. If the revenue decreased from the previous year, then the Maintenance Capital Expenditure = Capital Expenditure (positive).
Second, if the revenue increased from the previous year, then calculate the percentage of Net PPE as of corresponding Revenue.
Third, calculate Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase.
If [Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase] was negative, then the Maintenance Capital Expenditure = Capital Expenditure (positive).
If [Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase] was positive, then the Maintenance Capital Expenditure = Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase.
Fourth, GuruFocus uses an average of the 5 year maintenance capital expenditures as maintenance CAPEX.
Avery Dennison's Average Maintenance CAPEX = $235 Mil *.
* GuruFocus does not store EPV value into our database if Average Maintenance CAPEX is 0.

7. Investors require a return of "WACC" for the risk they are taking: WACC = 9%

8. Avery Dennison's current cash and cash equivalent = $213 Mil.
Avery Dennison's current interest bearing debt = Long-Term Debt & Capital Lease Obligation + Short-Term Debt & Capital Lease Obligation = 2,042 + 1,117 = $3158.9 Mil.
Avery Dennison's current Shares Outstanding (Diluted Average) = 81 Mil.

Avery Dennison's Earnings Power Value (EPV) for Sep24 is calculated as:

EPV = ( ( Norm. Earnings-Maint. CAPEX *) / WACC + CashandEquiv - Int. Bearing Debt ) / Shares Outstanding (Diluted Average)
= ( ( 1014.806085955 - 235)/ 9%+213-3158.9 )/81
=70.80

Margin of Safety (EPV)=( Earnings Power Value (EPV)-Current Price )/Earnings Power Value (EPV)
=( 70.799681786996-195.14 )/70.799681786996
= -175.62%

* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.

* GuruFocus does not store EPV value into our database if Average Maintenance CAPEX is 0.


Avery Dennison  (NYSE:AVY) Earnings Power Value (EPV) Explanation

Assumption: Current profitability is sustainable.

Earnings power value (EPV) uses a very basic equation which assumes no growth, although it does rely on an assumption about the cost of capital as well as the fact that current earnings are sustainable. It also involves several adjustments to clean up the underlying Earnings figures.


Be Aware

Though using today's earnings in calculating Earnings Power Value, GuruFocus is normalizing these earnings to the business cycle. This eliminates the effects on profitability of valuing the firm at different points in the business cycle. This means that we are considering the average earnings over 5 years.


Avery Dennison Earnings Power Value (EPV) Related Terms

Thank you for viewing the detailed overview of Avery Dennison's Earnings Power Value (EPV) provided by GuruFocus.com. Please click on the following links to see related term pages.


Avery Dennison Business Description

Traded in Other Exchanges
Address
8080 Norton Parkway, Mentor, OH, USA, 44060
Avery Dennison manufactures pressure-sensitive materials, merchandise tags, and labels. The company also runs a specialty converting business that produces radio-frequency identification, or RFID, inlays and labels. Avery Dennison draws a significant amount of revenue from outside the United States, with international operations accounting for the majority of total sales.
Executives
Nicholas Colisto officer: VP & Chief Information Officer C/O AVERY DENNISON CORPORATION, 207 GOODE AVE, GLENDALE CA 91203
Mitchell R Butier officer: VP, Controller & CAO 150 N. ORANGE GROVE BLVD., PASADENA CA 91103
Ignacio J Walker officer: VP and Chief Legal Officer 207 GOODE AVE, GLENDALE CA 91203
Deena Baker-nel officer: VP & Chief HR Officer 207 GOODE AVE, GLENDALE CA 91203
Francisco Melo officer: President, Solutions Group 8080 NORTON PARKWAY, MENTOR OH 44060
Gregory Lovins officer: V.P. and Interim CFO 207 GOODE AVENUE, GLENDALE CA 91203
Julia A Stewart director 4551 WEST 107TH STREET STE 100, C/O APPLEBEES INTERNATIONAL INC, OVERLAND PARK KS 66207
Divina Fe Santiago officer: VP Controller 8080 NORTON PARKWAY, MENTOR OH 44060
Hassan Rmaile officer: President, Materials Group 1200 WILLOW LAKE BLVD, P.O. BOX 64683, ST. PAUL MN 55110
Andres Alberto Lopez director ONE MICHAEL OWENS WAY, PERRYSBURG OH 43551
Francesca Reverberi director C/O TRINSEO S.A., 1000 CHESTERBROOK BLVD., SUITE 300, BERWYN PA 19312
Anthony Anderson director 1100 N. WOOD DALE ROAD, WOOD DALE IL 60191
Martha N. Sullivan director 529 PLEASANT STREET, MS B-7, ATTLEBORO MA 02703
William Raymond Wagner director C/O VOCUS, INC., 4296 FORBES BOULEVARD, LANHAM MD 20706
Bradley A Alford director 150 N ORANGE GROVE BLVD, PASADENA CA 91103