Investment Thesis
Avery Dennison demonstrates stable cash generation and manageable debt service, but faces headwinds from declining profitability (-2.4% YoY net income) despite modest revenue growth of 1.1%. Weak returns on equity (7.3%) and assets (1.9%) suggest limited earnings power, while elevated leverage (1.38x D/E) constrains financial flexibility in a low-growth mature business.
Strengths
- Positive free cash flow of $108.2M demonstrates operational cash generation capability
- Strong interest coverage ratio of 8.4x indicates robust debt servicing ability
- Established $2.3B revenue base in converted paper products with consistent market position
Risks
- Net income declined 2.4% YoY despite flat revenue growth, signaling margin compression and operational efficiency concerns
- Very weak return metrics (ROE 7.3%, ROA 1.9%) indicate poor capital allocation and limited earnings power relative to asset base
- Elevated leverage of 1.38x debt-to-equity combined with tight quick ratio of 0.80x creates liquidity pressure and limits financial flexibility
Key Metrics to Watch
- Operating margin trend and gross margin sustainability amid inflationary pressures
- Free cash flow generation and debt reduction trajectory given $3.2B long-term debt burden
- Return on equity improvement pathway given current 7.3% return is below cost of capital expectations
Financial Metrics
Revenue
2.3B
Net Income
168.1M
EPS (Diluted)
$2.18
Free Cash Flow
108.2M
Total Assets
9.0B
Cash
255.1M
Profitability Ratios
Gross Margin
28.9%
Operating Margin
10.5%
Net Margin
7.3%
ROE
7.3%
ROA
1.9%
FCF Margin
4.7%
Balance Sheet & Liquidity
Current Ratio
1.15x
Quick Ratio
0.80x
Debt/Equity
1.38x
Debt/Assets
0.0%
Interest Coverage
8.41x
Long-term Debt
3.2B
Disclaimer: This analysis is generated by AI based on publicly available SEC EDGAR filings.
It does not include stock price data and should not be considered financial advice.
All fundamental data is sourced from SEC public domain filings.
Always conduct your own research before making investment decisions.
Data Source: SEC EDGAR |
Analysis Date: 2026-05-06T12:44:42.376163 |
Data as of: 2026-03-31 |
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