AVY 223.47 (+2.11%)
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Last update on 2024-06-07

Avery Dennison (AVY) - Piotroski F-Score Analysis for Year 2023 (Final Score: 6/9)

Avery Dennison (AVY) achieves a Piotroski F-Score of 6/9 in 2023, reflecting good financial health with positive net income, cash flow, and improving gross margin.

Knowledge hint:
The Piotroski F-Score is a number between 0 to 9 which reflects the strength of a company's financial position. It is based on 9 criteria involving profitability, liquidity, and leverage. This model helps investors identify stocks that are strong, undervalued investments.
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Short Analysis - Piotroski Score: 6

We're running Avery Dennison (AVY) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

Criteria
Company has a positive net income?
1
Company has a positive cash flow?
1
Return on Assets (ROA) are growing?
0
Operating Cashflow are higher than Netincome?
1
Leverage is declining?
0
Current Ratio is growing?
1
Number of shares not diluted?
1
Cross Margin is growing?
1
Asset Turnover Ratio is growing?
0

Avery Dennison (AVY) underwent an analysis using the Piotroski F-Score criteria to evaluate its financial strength through metrics such as profitability, liquidity, and efficiency. The company attained a score of 6 out of 9, suggesting a reasonably strong financial position. Highlights include positive net income, strong cash flow from operations, higher operating cash flow compared to net income, growing current ratio, share buybacks, and an increasing gross margin. However, the company faced challenges like a decreasing return on assets, increased leverage, and a decreasing asset turnover ratio. In comparison to industry medians, AVY's gross margin and current ratio lagged slightly behind, indicating areas for potential improvement. Overall, the findings provide a balanced view of Avery Dennison's financial health and operational efficiency.

Insights for Value Investors Seeking Stable Income

Based on the Piotroski F-Score analysis, Avery Dennison (AVY) scores 6 out of 9, showcasing overall good health with some areas needing improvement. For investors, this makes AVY a viable option, especially due to its consistent profitability, efficient cash management, and active share buyback program. However, investors should also keep an eye on its leverage and asset utilization trends. Further investigation into how the company plans to address these issues and how it performs relative to industry peers would be advisable before making an investment decision.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of Avery Dennison (AVY)

Company has a positive net income?

Net income is a critical measure of a company's profitability, indicating whether it is generating profit or incurring loss.

Historical Net Income of Avery Dennison (AVY)

As of 2023, Avery Dennison (AVY) reported a net income of $503 million, which is positive. This trend aligns positively, particularly since net income remained negative only once in the past 20 years, specifically in 2009 during the financial crisis. The positive net income adds 1 point to the Piotroski score, signifying financial health and profitability.

Company has a positive cash flow?

The Cash Flow from Operations (CFO) criterion assesses the company's ability to generate sufficient operating cash flow. A positive cash flow indicates financial health.

Historical Operating Cash Flow of Avery Dennison (AVY)

Avery Dennison (AVY) has a CFO of $826 million in 2023, which is positive. Over the past 20 years, the company has consistently maintained positive cash flow, with a dip in 2013 ($320 million) but reaching over $1 billion in 2021. Positive CFO indicates a strong operational performance and efficient cash management, adding a point for the Piotroski Score.

Return on Assets (ROA) are growing?

Change in ROA looks at a company's Return on Assets (ROA) compared to the previous year, evaluating the efficiency of a company in utilizing its assets to generate profit.

Historical change in Return on Assets (ROA) of Avery Dennison (AVY)

In 2023, Avery Dennison's ROA was 0.0623, a decline from 0.0951 in 2022. This decreasing trend indicates a reduction in efficiency, suggesting that the company is generating less income from its assets compared to the previous year. According to the Piotroski scale, this results in a score of 0 for this criterion, signaling a negative aspect for potential investors. Notably, this trend sits unfavorably when contrasted with the industry's 20-year median ROA, which has remained relatively higher at approximately 0.3264 in 2023.

Operating Cashflow are higher than Netincome?

Criterion ref 61794 states the importance of comparing Operating Cash Flow with Net Income to reveal the quality of earnings.

Historical accruals of Avery Dennison (AVY)

For Avery Dennison (AVY) in 2023, the Operating Cash Flow stands at $826 million, whereas the Net Income is significantly lower at $503 million. This indicates a favorable trend in terms of earnings quality as the actual cash generated from operations ($826M) exceeds the company's stated net profit ($503M). Over the past 20 years, a detailed analysis reveals a similar pattern during periods such as 2019 and 2020 where operating cash flow was consistently higher than net income... Regular outperformance in Operating Cash Flow over Net Income affirms minimized dependency on non-cash items like accruals, and is indicative of strong operational efficiency, thus a positive indicator scoring AVY 1 point.

Liquidity of Avery Dennison (AVY)

Leverage is declining?

This criterion measures the change in leverage, as higher leverage means more debt relative to equity, indicating higher financial risk.

Historical leverage of Avery Dennison (AVY)

In 2023, Avery Dennison’s leverage increased to 0.3194 from 0.3149 in 2022, highlighting a marginal increase. Reviewing the last 20 years' leverage data, the leverage ratio has fluctuated significantly but appears to have stabilized somewhat around the 0.3 mark in recent years. This is a negative trend according to Piotroski's criteria, resulting in a score of 0, as the ideal scenario is a reduction in leverage, suggesting more efficient debt management.

Current Ratio is growing?

The Current Ratio compares a company's current assets to its current liabilities and indicates its ability to pay short-term obligations.

Historical Current Ratio of Avery Dennison (AVY)

The Current Ratio for Avery Dennison (AVY) increased from 0.9936 in 2022 to 1.0357 in 2023. This signifies an improvement in the company's liquidity position, enhancing its capability to cover short-term liabilities with its short-term assets. Despite the increase, it's critical to note that AVY's Current Ratio remains below the industry median of 1.4818, suggesting that although there is improvement, the company still lags behind industry standards in terms of liquidity. Historically, AVY has had periods where its Current Ratio was above 1, but it often fluctuated around this threshold, highlighting a recurring liquidity constraint. Therefore, this trend is positive, and according to Piotroski’s analysis criteria, it adds 1 point to AVY. However, further improvement is advisable for stronger alignment with industry benchmarks.

Number of shares not diluted?

Change in Shares Outstanding is an important indicator in the Piotroski Score and it checks if the company did a share buyback or issued new shares.

Historical outstanding shares of Avery Dennison (AVY)

Between 2022 and 2023, Avery Dennison's outstanding shares have decreased from 81,600,000 to 80,700,000, giving a positive indication. This reduction signifies a 1.11% decrease, suggesting a stock buyback which indicates the company's strong confidence in its future earnings and performance. Historically, Avery Dennison has shown fluctuations in its outstanding shares over the past two decades, peaking at 106,800,000 shares in 2009 and reducing steadily since then. This continuing trend of share buybacks is generally seen as a positive sign by investors and contributes to increasing shareholder value.

Operating of Avery Dennison (AVY)

Cross Margin is growing?

The change in gross margin evaluates the difference in a company's gross profit as a percentage of revenue between two periods. It's crucial as it indicates a company's production efficiency and pricing strategy.

Historical gross margin of Avery Dennison (AVY)

The gross margin for Avery Dennison (AVY) has increased from 0.2660 in 2022 to 0.2723 in 2023. This is a positive trend, signaling an improvement in operational efficiency or cost management. This uptick translates to a score of 1 point according to the Piotroski analysis. However, when comparing to the industry median, Avery Dennison's gross margin remains below the industry median of 0.3264 in 2023. Over the last 20 years, the company has consistently had a lower gross margin compared to the industry median, indicating potential competitive disadvantages or higher production costs in relation to peers. This is a good resolution for the specific criterion but warrants careful observation against industry standards.

Asset Turnover Ratio is growing?

Asset Turnover measures a company's efficiency at using its assets to generate revenue. It's calculated by dividing sales by total assets.

Historical asset turnover ratio of Avery Dennison (AVY)

In 2023, Avery Dennison (AVY) reported an Asset Turnover of 1.0352, down from 1.1354 in 2022. This 8.83% decrease indicates reduced efficiency in asset utilization. Historically, AVY’s Asset Turnover ranged from 1.2278 (2003) to 1.4271 (2016), showing fluctuations. The decline seen in 2023 marks a low point in 20 years, suggesting potential operational challenges. Consequently, for the Piotroski score, this criterion receives a 0.


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