American Greetings: Happy Shopping

A Little Loss Of Late
These days, American Greetings (AM ) inspires more people on Wall Street with its birthday cards than its shares. The stock is down 15% in the past six months and trades at a weak 13 times earnings. The 99-year-old business is mature, growing only 1.5% a year. There's little room for expansion because American already has 40% of the market (and privately held Hallmark Cards has 50%). But don't let those stats fool you, says Brian Foote, an analyst at Independent Research Group. American mints money, and its stock is a bargain at 23, he says. Foote's target: 37 in 12 months. American books gross profits of 50% of sales. Its river of free cash flow paid down $400 million of debt the past two years. Foote figures the stock is cheap, trading at just nine times his estimate of next year's free cash flow of $2.50 a share. Savings from restructurings should net more profits. Robert Olstein, a mutual-fund manager always looking to short stocks with weak cash flow or accounting issues, owns 2% of the shares. American could buy back 11% of its stock in the next year. That will lift share earnings and could spark investor interest.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

By David Henry

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