American Greetings is a company that primarily produces gift cards and wrapping paper. This company currently trades at 11x earnings, and adjusting for certain charges in 2009, 06-10 averaged around $70m in net income, with a low of $38m. Profit peaked in 2003 at $120m. The company appears to be transforming somewhat though, making the past a less reliable indicator of future performance.
The company disposed of its retail operations in 2009 and took a huge charge against it. The stock dropped to the $3 range, although the company was generating enough cash to cover its costs. The share count has fallen from 66,000,000 in 2006 to 41,000,000 in the most recent quarter, so it appears that management acted shrewdly. They spent $250m on repurchases in 08 and 09. The dividend has grown over the past 5 years as well. Debt has decreased. A lot of factors seem to be going in the right direction for value creation.
The company is ~40% owned, but completely controlled through special voting shares by the Weiss family. The company seemed to take a good long-term perspective in buying back shares over the years. Their actions deserve closer scrutiny though as there are several family members in high-level positions.
The company has fairly concentrated sales. Walmart and Target account for 30% of sales, which is always something to monitor. From a personal perspective, large retailers would be the location that comes to mind to purchase a greeting card. Walgreens and CVS also chip in with a good chunk of sales. The only other major competition is Hallmark, which is privately held and family controlled.
From a reducto ad absurdum standpoint, putting cute words on some nice paper seems like a low barrier to entry business. I haven’t really done enough research yet, but it seems like there are really only 2 major players. I suspect economies of scale have something to do with it. It also helps the business is not very sexy.
I don’t view the company as overwhelmingly cheap, but there might be some value in its inexpensive multiple. I would like to find evidence that the company does deserve a higher multiple before I just assume multiple expansion will happen by virtue of me dictating it. The company has been returning cash to shareholders and increasing value over the years and the cash flow is fairly steady. I’d like to further investigate why the market perceived the company so poorly that the price dropped to $3 per share. Is the company less capital intensive now and can the company grow any larger? I will dig further this week.
Talk to Andrew about American Greetings
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