American Greetings Harvard Case Solution & Analysis

CASE QUESTIONS

  1. What is going on at American Greetings?
  2. What are the primary reasons for the stock price declines?
  3. Is AG properly valued based on analysis? What are its prospects?
  4. Is stock re-purchase program an appropriate response to the current situation? Why?
    1. American Greetings is a greeting cards company;it is planning to buy stock from market and its share price decreasing constantly. The competition has increased as the social networking sites are emerged in this market. So AG is considering increasing its share price by repurchasing the stock from market.
    2. AG is not looking at the business opportunities available around it. It can expend its business in the international market. It should consider and focus on the IT as people prefer to use E-cards on the social sites not the physical greeting cards. These can cause the decrease in the share price.
    3. AG is properly valued, the detailed discussion can be found in the analysis below.
    4. The repurchase option does not look so attractive because the trend is showing that investors think like the Bearish.  According to the Bearish thinking the company will not grow and therefore, the share price will alsodecrease. Thus, AG should not repurchase the stock and it can invest this amount into the international market to expend further.

RECOMMENDATIONS

ANALYTICAL APPROACH

Key assumptions given in the case:

  1. The 3% growth has been taken in the Bullish scenario
  2. The 0% growth has been taken in the Bearish scenario.

Options evaluated:

The following table illustrates the alternative options that AG is considering and the result from each option can be seen in this table.

PARTICULARS

BASE CASE

BULLISH CASE

BEARISH CASE

SHARE PRICE ($)

12.51

31

10.5

WACC (%)

9.06

9.21

9.21

Recommendation Approach:

  1. The recommendation is based on the valuation, and the valuation has been performed on the scenarios as shown in the table. These scenarios can be happened after the stock repurchase.
  2. Further discussion has been performed on the various multiples of the AG in part ‘c’ of the analysis to conclude the best recommendation.
  3. a.      American Greetings (AG) is greeting card Company, which is a dominant company in this industry. There are few competitors in this industry. AG has enjoyed a strong profits growth and a maintained share price. It is the second largest greeting cards company in the market of the United States. AG is involved in the physical greetings cards as well as the online greeting cards to better serve the market as a whole. In addition to gift cards, the company also sells gift wraps, candles and party goods. he AG’s strength is it that it serves a major portion of the market in the United States, however it can also move to the other countries as this is the opportunity for AG and should exploit as its major competitor, Hallmark, is doing. AG is operating in the mature face of the life cycle, as we can see in the exhibit 5 that people do not prefer or divert from physical greeting cards or e-cards. The current emerging market is the social networking sites such as Facebook. The revenue is also decreasing throughout the period and this also gives the signal of the declining growth of the market. This decline in sales is due to the increasing trend of the social sites.

American Greetings Case Solution

ANALYSIS

AG has the famous brands for its greeting cards; it can purchase further brands to improve its sales and can enter in the international market. AG’s major threat is its competitor, Hallmark. It has the major share of the market and is market leader. Infect both are market leaders because both have major share however,Hallmark has more shares.....................................

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