AM - American Greetings Corp.

[biaggio]

-American Greetings is the second largest creator, manufacturer and distributor of greeting cards and social expression products. Its staff of artists, designers and writers make up one of the largest creative departments in the world and supplies greeting cards to retail outlets in nearly every English-speaking country.
-American Greetings’ management is redesigning operations by cutting costs, selling less-profitable operations and acquiring smaller companies to enhance profits and growth.
-old fashion industry using technology to differentiate itself from competition-leadership role in using liquid crystal displays or LCDs in cards. W- and have now created new cards that are available either preloaded with holiday images or ready to be customized with up to 50 of your own photos.
These patented cards feature full color LCD displays and high quality audio


expecting to at least meet projected cash flow from operations minus capital expenditures goal of $125 million with upside to this estimate
Closed at $22.80
EPS:
2.18
Dividend:
0.56
Yield:
2.46%
Market Cap:
$914 million
LTD: $232 million

EBIT:$139 million
Shares outstanding (fully diluted):40.159 million
Tangible assets:$922 million
LTD:$328.7 million
Owners earnings:$131 MILLION  $3.27/SHARE
ROC:15%
Earnings yield:11%
Free cash has been flat, with some significant variance.
Buying back ~ 4-5% of shares every year.

Valuation:

DCF
Assuming 4% growth (assuming no volume or price increase, just share buy backs)x 5 years in FCF/share of $3.27 and 10% discount rate gives IV of ~$50

Moat:
-very narrow if any
-reflected by 15% ROC
-distribution network
-size (second largest maker of greeting cards)
-faces significant competitive threats--3000 small family business, desk top publishing
-using technology to differentiate product
-working in negative growth industry. There will not be any new large competitors. Real smart innovators will be busy in other industries. Will be able to buy out smaller players if the price is right.

Concerns- dual class structure. Controlled by founding family. It appears to me that the managers pay themselves generously.

[biaggio]

"Seems to have very strong customer captivity (a greeting card company typically controls an entire retailer's category).  In exchange, AM pays an upfront fee to the retailer and maintains the shelf space (an AM employee visits each location on a regular basis to freshen the display, restock and take note of slow moving items).  Switching costs are somewhat burdensome, because a new card company needs to remove the old shelving and displays and replace with their own.  Not a time consuming process for one store but can lead to disruption across a large chain.  Plus, the frequent customer visits helps with service.  As a result, the SG&A for this company is rather large because they need to support this direct shipping arrangement, leading to somewhat high fixed costs.    They basically operate mini retail shops within their retail customers. "-from board member COYS from another part of board