Avery Dennison

Avery Dennison Corp is assigned a 5-star quantitative star rating, reflecting our opinion that this share class offers a compelling opportunity for investors. The stock currently trades at a 14% discount to our quantitative fair value estimate of $199.57 per share, which is reinforced by this estimate's low uncertainty rating.

The firm's valuation metrics increase our fair value estimate. A company's valuation metrics provide insights into the market's expectations for its future growth and profitability. Reflecting the firm's valuation is its enterprise value to EBITDA ratio of 10.5, which sits in the bottom 40% globally. Relative to the company's EBITDA, the enterprise value of the business is low, which contributes to our view that shares are undervalued.

On a different note, the company's balance sheet is potentially concerning. Excessive leverage heightens financial risk, potentially undermining a firm's value. The firm's EBITDA/interest coverage ratio of 10.2, for example, lies in the bottom 45% compared with peers globally. This gives us pause, as it can be a warning sign of financial distress if conditions don't improve. Despite our favorable price/fair value ratio, this characteristic is a negative attribute.

The company's narrow quantitative moat rating indicates it could outearn its cost of capital and maintain robust margins for 10 years or longer. In addition, the company's moderate financial health score is decent and doesn't seriously concern us with regard to financial distress.