I read an article published on Friday by Samuel Leathers and featured on the site, Seeking Alpha.  The crux of the article, which you can read here,  is the author’s opinion that a better way to play the “Graying of America” demographic in the stock market than senior housing and the nursing home industry is to make a play on the death care industry, and specifically, the public company Service Corporation International (SCI).

Some of the opinions as presented in the article are such:

• The retirement age elderly will see a rapid expansion of the next 15 years
• The nature of long-term care and nursing home reimbursement models are far from certain
• SCI has a market capitalization of $7.15 billion (as of 1/10/18)
• SCI has a pre-arranged backlog that seems to assure a higher market cap in the future.
• SCI has a 16% market share of the U.S. death care market and the next three firms combined account for only 5%
• The author believes that SCI could reach a $20 billion plus market cap by 2030 and could acquire its way to a 30% national market share by that time
• The capital returns and dividends have been strong for SCI, but an investor will have to watch the company’s debt load as they grow

Leathers final conclusion is that following macro trends – like the aging of the baby boom generation – can be useful, but they don’t always play out the way you might expect.  His final conclusion is that the death care industry is a “better “sure-thing” than the senior housing REIT industry.

Funeral Director Daily take:   I think that this is a really good article.  I think that it gets a lot of facts correct about Service Corporation International and its current operations.  One of the things I enjoyed seeing in the article was a graphic of the United States which showed SCI’s properties by state.  That graphic alone was worth the article for me —from it I surmise that SCI is pretty adept at focusing future growth in locations on “where the people will be.”

That last sentence makes a lot of sense.  It was bank robber Willie Sutton who when asked why he robbed banks, responded, “Because that’s where the money is.”  I think it is apparent, when you look at the map, that SCI’s overall structure is to have facilities “Where the retirement people are.”  It appears to me that SCI will have an acquisition strategy in the Southeast, the Southwest, and the Mountain States, while being more selective in acquisitions in the East, Great Lakes, Midwest, and Western Prairie areas of the country.

Finally, my final take on the article is that Leathers may be too bullish on the company somewhat out of naivety of the industry.  No where does he talk about the potential for less revenue per service – because of the rise of direct cremation – as the industry moves forward.  To me, that number is the biggest unknown in this type of investment.

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