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American Greetings Exec Summary
Tyler Reames October 14, 2013
American Greetings Executive Summary – FIN 3717
Executive Summary
American Greetings is the second largest greeting card publisher in the U.S., behind Hallmark. The company is involved in retail and online sales.
Hallmark is the main competition for American Greetings. In recent years, social media has caused a decline in the greeting card industry. Both American Greetings and Hallmark have begun creating electronic cards to take advantage of the digital revolution.
Problem
By the end of 2012, American Greetings was at the bottom of its peer group, with a low EV-EBITDA multiple, market-to-book below 1, a 6x PE ratio, and a share price of $12.51 that had dropped significantly in the months prior.
American Greetings has historically used a share repurchase strategy in times of low equity. This is a good defense if the stock price is down temporarily, but the low valuation could also be a sign of larger trouble where it would be wise to preserve cash.
Both S&P and Value Line anticipated modest growth for American Greetings in the coming years.
Analysis
We conducted an analysis for 2012 through 2015 to determine the value of the company. Our analysis began with calculating the operating cash flows (OCF = operating income * (1 – 0.4) - ∆NWC):
Operating Cash Flow (millions)
2011 118
2012 83
2013 86
2014 88
2015 91
Operating Cash Flow (millions)
2011 118
2012 83
2013 86
2014 88
2015 91
We then determined a WACC of 5.37% based on a cost of equity of 8.85% (calculated with beta of 1.76, risk fee rate of 0.05%, and market risk premium of 5%) and estimated the cost of debt at 6%.
Then, we calculated the discounted cash flows (DCF = OCF / (1 + WACC)^Period):
Discounted Cash Flow (millions) Period
2011 112.33 1
2012 75.12 2
2013 73.43 3
2014 71.77 4
2015 70.16 5
Discounted Cash Flow (millions) Period
2011 112.33 1
2012 75.12 2
2013 73.43 3
2014
Tyler Reames October 14, 2013
American Greetings Executive Summary – FIN 3717
Executive Summary
American Greetings is the second largest greeting card publisher in the U.S., behind Hallmark. The company is involved in retail and online sales.
Hallmark is the main competition for American Greetings. In recent years, social media has caused a decline in the greeting card industry. Both American Greetings and Hallmark have begun creating electronic cards to take advantage of the digital revolution.
Problem
By the end of 2012, American Greetings was at the bottom of its peer group, with a low EV-EBITDA multiple, market-to-book below 1, a 6x PE ratio, and a share price of $12.51 that had dropped significantly in the months prior.
American Greetings has historically used a share repurchase strategy in times of low equity. This is a good defense if the stock price is down temporarily, but the low valuation could also be a sign of larger trouble where it would be wise to preserve cash.
Both S&P and Value Line anticipated modest growth for American Greetings in the coming years.
Analysis
We conducted an analysis for 2012 through 2015 to determine the value of the company. Our analysis began with calculating the operating cash flows (OCF = operating income * (1 – 0.4) - ∆NWC):
Operating Cash Flow (millions)
2011 118
2012 83
2013 86
2014 88
2015 91
Operating Cash Flow (millions)
2011 118
2012 83
2013 86
2014 88
2015 91
We then determined a WACC of 5.37% based on a cost of equity of 8.85% (calculated with beta of 1.76, risk fee rate of 0.05%, and market risk premium of 5%) and estimated the cost of debt at 6%.
Then, we calculated the discounted cash flows (DCF = OCF / (1 + WACC)^Period):
Discounted Cash Flow (millions) Period
2011 112.33 1
2012 75.12 2
2013 73.43 3
2014 71.77 4
2015 70.16 5
Discounted Cash Flow (millions) Period
2011 112.33 1
2012 75.12 2
2013 73.43 3
2014