Finance

Seeking Alpha: Death care stocks to benefit from pent up demand

Seeking Alpha published an opinion piece from writer Malvin Spooner on Saturday, April 18, which theorized that death care public companies Service Corporation International (SCI) and Carriage Services (CSV) will benefit from what Spooner characterized as “pent up demand”.  You can read the full article here.

Spooner says that “the death care industry stocks have sold off with the rest of the market, and although revenues from services are being squeezed by social distancing, it is likely that funeral services and memorials are being postponed rather than cancelled altogether.”  His summary mentions these three items:

  1. SCI and Carriage Services are “good value”
  2. Death care stocks are less damaged financially by coronavirus
  3. SCI and Carriage Services are conservative rebound candidates.

It is also mentioned that Carriage Services is much smaller than SCI, and therefore, may be a higher growth story.

The article also makes the following claims in support of these stocks:

  • “Prepaid services (revenues held in trust) account for a significant portion of their businesses and postponed revenues will be realized once the pandemic has run its course.”
  • “Deemed an essential service, death care companies continue to generate revenues even as many other industries are in lock-down mode.  The question is whether or not their financial situation is stable enough to weather the temporary dampening of activity.”
  • “The generous operating margins enjoyed by these businesses and ample cash flow suggest there is unlikely a threat to dividends.”
  • “The potential for a significant rebound once social distancing is relaxed, will set the stage for upward surprises in earnings post-crisis.”
  • “SCI is the Cadillac of the industry, but I’ve included Carriage Services as a potentially more risky but potentially higher small-cap growth story in the sector.”
  • “Both companies stand to benefit longer term from the aging of the U.S. Population.  By the year 2030, all baby boomers will be over 65 years of age.”
  • “Demographics would suggest that there’s no longer term risk to owning these stocks.”
  • “The only risk to my thesis is a prolonged period of physical distancing which will dampen margins.”

Funeral Director Daily take:  This is a really good article about one person’s thought process of investing in these two companies.  I think he hits many good points about investing in these companies, however, I always take with a grain of salt somebody who is not working in the industry to know what makes it tick.  In that vein, I agree with some of what Spooner says and I disagree with other points.

As a disclaimer, this writer owns stock in Service Corporation International.

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