Avery Dennison CorporationAVYNYSE

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DCF Valuation

DCF Valuation Summary

Hold

Fair Value: $211.64 per share(market-calibrated)

+11.0%

Upside to Fair Value

Current

$190.64

Pure Model

$210.52

Fair Value

$211.64

Bull Case

$256.28

Bear Case

$169.70

Market Reality Check

Model Terminal Growth

2.25%

Market-Implied Growth

2.79%

Calibrated Growth

2.33%

Fair value uses 85% model / 15% market-implied terminal growth. Pure model: $210.52.

What's Driving This Ratingfor AVY

✓

CapEx already efficient

CapEx at 2.79% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

↑

Margin expansion modeled

Current EBIT margin is 11.71% — below the sector mature average of 13.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $1.5B (12.73% margin).

→

Moderate revenue growth

Analyst consensus projects 4.55% revenue growth, fading to 2.25% by Year 10. Revenue reaches $11.7B (vs $8.9B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $174.36/share (19.3x terminal FCF) while exit multiple gives $246.69/share (29.5x terminal FCF). The 18x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 2.25% growth is more conservative. The base case averages both methods.

✓

Model and market roughly agree

Market-implied terminal growth of 2.79% is close to the model's 2.25% (only 54bps apart). The DCF assumptions are well-aligned with how the market is pricing this stock.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 60.91% indicates efficient cash generation. FCF reaches $1.1B by Year 10 (9.61% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.99

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)8.94%

Cost of Debt

Pre-tax Cost of Debt2.82%

Tax Rate25.63%

After-tax Cost of Debt2.09%

Equity Weight (E/V)79.81%

Debt Weight (D/V)20.19%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (79.81% × 8.94%) + (20.19% × 2.09%)

= 7.56%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$9.3B	$10.0B	$10.5B	$11.0B	$11.7B
EBIT	$1.1B	$1.2B	$1.3B	$1.4B	$1.5B
Tax	$278M	$299M	$328M	$351M	$383M
NOPAT	$806M	$868M	$951M	$1.0B	$1.1B
+ Depreciation	$283M	$304M	$321M	$335M	$358M
- Capex	$258M	$278M	$293M	$306M	$327M
- Δ NWC	$22M	$20M	$13M	$13M	$14M
Free Cash Flow	$809M	$875M	$966M	$1.0B	$1.1B
Discount Factor	0.930	0.804	0.695	0.601	0.483
Present Value	$752M	$703M	$671M	$621M	$545M

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$1.1B

Terminal Growth Rate2.25%

WACC7.56%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$21.8B

PV of Terminal Value$10.5B

Exit Multiple Method

Year 10 EBITDA$1.9B

Exit Multiple (EV/EBITDA)18.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$33.4B

PV of Terminal Value$16.1B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$6.5B

PV of Terminal Value$10.5B

Enterprise Value$17.0B

(-) Net Debt$3.5B

Equity Value$13.5B

Shares Outstanding77M

Price per Share$174.36

Exit Multiple Method

PV of Projected FCFs$6.5B

PV of Terminal Value$16.1B

Enterprise Value$22.6B

(-) Net Debt$3.5B

Equity Value$19.1B

Shares Outstanding77M

Price per Share$246.69

Pure Model Fair Value

$210.52

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.25%	1.75%	2.25%	2.75%	3.25%
5.56%	$272.82	$286.50	$304.31	$328.47	$363.12
6.56%	$230.86	$238.93	$248.88	$261.44	$277.81
7.56%	$199.21	$204.38	$210.52	$217.95	$227.09
8.56%	$174.03	$177.53	$181.59	$186.35	$192.00
9.56%	$153.27	$155.74	$158.55	$161.78	$165.52

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$169.70

-11.0% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.23

Base Case

$210.52

10.4% vs current

• Analyst consensus
• Terminal growth: 2.3%
• Beta: 0.99

Bull Case

$256.28

34.4% vs current

• +25% vs analyst consensus
• Terminal growth: 2.8%
• Beta: 0.84

Key Assumptions & Drivers• Industrials Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth4.55%

Year 3 Revenue Growth3.80%

Year 5 Revenue Growth2.25%

Year 7 Revenue Growth2.25%

Year 10 Revenue Growth2.25%

Terminal Growth Rate2.25%

Margin & Efficiency

Current EBIT Margin11.71%

Terminal EBIT Margin13.00%

Tax Rate25.63%

Historical Capex / Rev2.79%

NWC / Revenue5.47%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 18x EV/EBITDA (Industrials sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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