Sonia Essay

1289 Words Nov 5th, 2015 6 Pages
Sonia Zahid
Case 43
October 28, 2015
American Greetings
Should American Greetings Repurchase its Shares?

1. Is 3.5x multiple appropriate for American Greetings? If not, what multiple of EBITDA to think is justified?
Based on the information provided, I believe that the EBITDA Multiple of 3.5x is not justified.
EBITDA Mutiple (or EV/EBITDA) is a better measure than P/E ratio because it is not affected by the changes in capital structure between debt and equity. And for this reason it also makes fair comparison to companies with different capital structures. It is also a pre-tax metric making it easier to compare across different companies preferably in the same industry. This metric is preferred over P/E ratio since it is not affected by
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Since the EBITDA multiple of American Greeting is lower than its peers, this is also gives an indication that the stock is undervalued.

What is the implied share price that corresponds to that multiple?
Implied share Price:
EBITDA– Dividends Paid/Shares outstanding
$200.58mill – (3.32mill x 60 cents per share) / 3.32mill = $59.82 implied share price

2. Enterprise Value is examined Below based on model cash flow from 2012-2016

EBITDA
Multiple
3.08
7.97
7.54
5.59
6.16
5.21
8.82
11.11
12.14
7.62
7.03
1.92
5.45
9.66
8.41

Projected Cash Flow

(in Mill except for EPS)

2012

2013

2014

2015

TV
2016

Total American Greetings Figures
Total Revenue
Material, Labor, and Other Pruduction Costs
Selling, Distribution, and Marketing Expenses
Administrative and General Expenses
Goodwill and Other Intangible Asset Impairments
Other operating expenses

1,613
714
531
258
0
-6

1551
687
510
258
0
-6

1491
660
491
258
0
-5

1434
635
472
258
0
-5

1378
610
454
258
0
-5

115
27

101
26

87
25

74
24

61
23

Income Before Income Tax Expense