Fiduciary Management, an investment management firm, published its “All Cap Strategy” first quarter 2022 investor letter – a copy of which can be downloaded here. The FMI All Cap Strategy declined approximately 4.5% (gross)/4.6% (net) in the September quarter compared to a 4.32% decline in the iShares Russell 3000 ETF Try to spare some time to check the fund’s top 5 holdings for you to have an idea about their best stock picks this 2022.
In its Q3 2022 investor letter, Fiduciary Management All Cap Strategy mentioned Avery Dennison Corporation (NYSE:AVY) and explained its insights for the company. Founded in 1935, Avery Dennison Corporation (NYSE:AVY) is a Mentor, Ohio-based packaging and labeling company with a $14.2 billion market capitalization. Avery Dennison Corporation (NYSE:AVY) delivered a -18.69% return since the beginning of the year, while its 12-month returns are down by -22.47%. The stock closed at $176.09 per share on November 08, 2022.
Here is what Fiduciary Management All Cap Strategy has to say about Avery Dennison Corporation (NYSE:AVY) in its Q3 2022 investor letter:
“Avery Dennison is a vertically integrated manufacturer of pressure sensitive labels and assorted tickets and tags. Pressure sensitive labels are used on products such as beverages, shampoo, shipping packages, pharmaceuticals, etc. Avery reports in three segments: Pressure Sensitive Materials (65% of sales), Retail Branding & Information Solutions (26%), and Industrial & Healthcare Materials (9%). Avery primarily manufactures locally and operates 200 manufacturing and distribution facilities in over 50 countries.
Good Business
Avery is the global leader in its main product lines and is 2.5 times larger than its next largest competitor in pressure sensitive labels. This confers scale benefits that allow it to earn best-in-class margins while still leading on innovation. Avery is minimally cyclical. Fast turning product lines, including consumer goods, retail, and logistics/shipping account for ~80% of sales. Avery has proven adept at cost management in periods of lower demand. Avery’s product usage is not impacted by the shift to private label and/or start up brands, a perennial challenge in home and personal care/consumer packaged goods categories. Avery’s products are low-cost relative to the total product, yet they convey high value information to the consumer (brand image, product quality, etc.). Avery has 50%+ market share in ultra-high frequency radio frequency identification (UHF RFID) tags, which are undergoing secular growth in the +15-20% range. Avery’s historical and incremental returns on capital are high. ROIC was 18% in 2021, up from 9% in 2012, driven by both capital discipline and operating profit growth. Avery’s balance sheet is appropriately levered.
Valuation
With high-single-digit long term earnings growth expectations and a 20% return on invested capital, 16 times forward earnings and 11.4 times forward EBITDA are reasonable absolute multiples. Prior to this period of raw material inflation and a potential macro slow down, Avery traded at 25 times forward earnings and 16 times forward EBITDA. The P/E is below the 5-year average and EV/EBITDA is equal to the 5-year average. RFID is 8% of sales and continues to grow well above the company average. We believe that this could structurally increase Avery’s trading multiple in the next 3-5 years…” (Click here to see the full text)
Our calculations show that Avery Dennison Corporation (NYSE:AVY) fell short and didn’t make it on our list of the 30 Most Popular Stocks Among Hedge Funds. Avery Dennison Corporation (NYSE:AVY) was in 19 hedge fund portfolios at the end of the second quarter of 2022, compared to 31 funds in the previous quarter. Avery Dennison Corporation (NYSE:AVY) delivered a -9.08% return in the past 3 months.
In May 2022, we published an article that includes Avery Dennison Corporation (NYSE:AVY) in 5 Companies that Just Increased Their Dividends. You can find other investor letters from hedge funds and prominent investors on our hedge fund investor letters 2022 Q3 page.
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Disclosure: None. This article is originally published at Insider Monkey.
