Avery Dennison Corporation (NYSE:AVY) makes labeling materials and identification products used across consumer goods, apparel, food, and logistics. It earns money from repeat purchases as customers manufacture, package, and track products. The company also appears in Insider Monkey’s 8 Best Paper and Plastic Packaging Stocks to Buy According to Hedge Funds.
Customers buying early complicate that recurring demand. Second-quarter organic sales growth, a non-GAAP measure excluding currency and portfolio changes, accelerated to 7.6% from 1.1% in the first quarter. Management attributed roughly half to customer stocking and expects most of that benefit to unwind during the second half. The valuation question is whether durable earnings growth survives that reversal.
Materials Expertise Must Earn Its Premium
Avery Dennison Corporation combines materials science with customers’ labeling and identification processes. Labels must adhere reliably, work with production equipment and carry usable information. Once a material performs consistently, changing suppliers can require testing and operational adjustments. Those switching costs support repeat orders and pricing.
Maintaining that advantage requires product development, reliable manufacturing and service. Materials Group’s second-quarter profitability benefited from productivity and favorable pricing relative to raw-material costs, partly offset by employee costs and product mix. The practical test is whether higher prices actually improve margins while customers retain a reason to reorder. A valuation premium requires those benefits to persist when production volumes soften.
The Lower P/E Requires Earnings Beyond Early Orders
Avery Dennison Corporation carries approximately 15x forward P/E and 18x trailing P/E. Trailing P/E uses historical earnings; forward P/E uses forecasts. The stock is fairly valued for a business capable of modest sales growth and continued productivity gains. The earnings forecasts require progress beyond the unusually strong second quarter.
Analysts expect non-GAAP adjusted EPS of approximately $10.18 in 2026 and $11.19 in 2027, implying growth of about 7% and 10%, respectively. The forward multiple aligns with the 2027 adjusted estimate. Analysts also forecast reported EPS of $11.07 for 2027, pointing to higher profits as the main reason for the gap with trailing earnings. Management expects 3%–4% organic sales growth for 2026 after the inventory reversal.
Avery Dennison Corporation guides to reported EPS of $9.40–$9.70 and adjusted EPS of $10.00–$10.30, excluding approximately $0.60 of restructuring and other items. These exclusions explain why reported profit and adjusted earnings power differ. Restructuring savings can improve future profitability, but severance and implementation spending still consume resources. Its strong cash position also supports its inclusion in our cash-rich stocks list.
Management expects more than $60 million of incremental restructuring savings in 2026. Currency translation and a lower share count also help EPS, while higher interest expense, taxes, and the reversal of temporary incentive-compensation savings absorb part of the improvement. Restructuring lowers the ongoing cost base. Once those savings are fully reflected in earnings, further growth needs additional productivity gains or higher volumes.
Stocking added approximately $0.25 to second-quarter adjusted EPS of $2.89. It remains inside adjusted earnings because the orders are ordinary sales. Higher shipments spread factory costs across more output, helping lift the non-GAAP adjusted operating margin to 13.6% from 12.9%. As customers use their inventories, reduced production could reverse some of that benefit, testing how much of an apparent margin gain can last.
Cash generation provides support for Avery Dennison Corporation. First-half operating cash flow of $545 million left approximately $463 million after property, equipment and software spending, against $347 million of dividends and repurchases. Working-capital movements helped that improvement. Further repurchases must compete with reinvestment for cash, especially with approximately $260 million of planned annual capital spending. Buying back shares raises per-share earnings, but its value depends on cash remaining after investment and financing costs.
A Smaller Multiple Reflects a Slower Growth Record
The 15x forward P/E for Avery Dennison Corporation compares with approximately 21x in September 2024 and 17x at year-end 2025. The 2024 observation came during a strong earnings recovery: adjusted EPS ultimately increased 19% that year, supported by recovering base-label and apparel volumes and better productivity.
That recovery slowed sharply in 2025. Adjusted EPS rose only 1%, while organic sales were broadly unchanged. Compared with 2024, a lower multiple fits a business delivering less vigorous growth. Materials expertise remains valuable, but investors have less evidence of sustained expansion.
Against year-end 2025, the earnings outlook has improved. Forecast EPS growth of approximately 7% and then 10% offers a stronger foundation than the previous year’s stagnation. However, stocking makes the recovery harder to assess, and maintaining margins as orders normalize remains essential to earning a higher multiple.
Intelligent labels offer Avery Dennison Corporation a route to faster recurring growth. These tags connect physical products with digital information. Organic sales increased only in the low single digits in Q2. Apparel and general retail grew approximately 10%, while food and logistics declined by double digits on the same basis. Broader grocery adoption could support repeated tag purchases, but development and capacity spending must produce profitable scale before that opportunity deserves a larger premium.
Higher Margins Need Stronger Cash Conversion
CCL Industries Inc. (TSX:CCL.B) is the closest operating comparison because it also supplies specialty labels, packaging materials, and identification technology. Its broader mix includes polymer banknote materials and consumer printing products, creating different demand patterns.
Avery Dennison Corporation trades at approximately 15x forward P/E, compared with 17x for CCL Industries Inc.. Analysts expect approximately 10% adjusted EPS growth for the peer in 2026, ahead of the primary company’s 7%. For 2027, the ordering reverses to roughly 7% versus 10%. The peer premium therefore needs support beyond the coming year’s growth rate.
CCL Industries Inc. reported second-quarter non-IFRS operating income equal to 16.6% of sales before corporate expenses. Deducting those expenses leaves approximately 15.4%, before restructuring and other items, compared with the primary company’s 13.6% adjusted operating margin. IFRS reporting and different business mixes affect the comparison, but stronger profitability supports a higher valuation.
Financing risk reinforces that case. The peer reported net debt to adjusted EBITDA of approximately 1.1x, versus 2.3x for the primary company under their respective definitions. Lower leverage provides more capacity to fund growth or absorb weaker demand.
Weaker cash conversion tempers that advantage. First-half company-defined, non-IFRS free cash flow from operations fell to C$226.5 million from C$265.1 million. This measure subtracts capital expenditure from operating cash flow and adds property-disposal proceeds. The $463 million calculation above excludes disposal proceeds and deducts software spending. Increased working capital weighed on the peer’s second-quarter cash generation.
Conclusion
Avery Dennison Corporation is fairly valued at approximately 15x forward earnings. Materials expertise, repeat purchases, and productivity savings support the earnings outlook. Intelligent labels offer additional growth, but their uneven performance gives investors little reason to assume a return to the higher historical multiple.
Sustaining that valuation requires 3%–4% organic growth, resilient margins through destocking, and earnings that convert into cash after investment. Weak repeat orders or savings overwhelmed by lower factory utilization would make the discount less attractive.
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This article is originally published at Insider Monkey.
