Recent Death Care Index (DCI) rise reflects cautionary growth of the profession



We’ve just passed the time period where the companies that comprise the Funeral Director Daily Death Care Index (DCI) have publicly shared their results for the April thru June 2023 time period.  The five companies that comprise the index include Matthews International, Security National Financial Corporation, Carriage Services, Park Lawn Corporation, and Service Corporation International (SCI).


If you look at where these companies combined stock price stood on January 1, 2023, you would have seen a composite price of $153.53.  On Friday that price was up 3.28% for the year to $158.57.  That’s very comparable to the Dow Jones Industrial Average increase for the year-to-date of 3.6%.


However, the DCI lacks the stock price appreciation of the Nasdaq 100, which is up 42.8% YTD and the S&P 500 which is up 14.7% YTD.


There are reasons for that which investors see such as the headwinds of inflation and interest rate increases that the heritage funeral home and cemetery consolidators such as SCI, Carriage Services, and Park Lawn Corporation are running up against in creating larger profits.  However, I see other not so apparent reasons why these stocks seem to be held down at this time.


Those funeral service companies are making money.  . and there certainly is nothing wrong with that.  However, their similarity in stock appreciation to the Dow Jones Industrials also shows a similarity in being, for the most part, “old economy” companies.  Take a look at the companies that make up the Dow Jones Industrials, and while you will find a few “new economy” technology stocks like Salesforce, Apple, and Microsoft, the vast majority of the companies on that list have had a history of decades of solid, but not spectacular, earnings.  Companies that I think of are companies like Johnson & Johnson, Caterpillar, Honeywell, 3M, and more.  Great companies that produce increased earnings almost every quarter but don’t possess the technology play that might move the stock price higher faster.


Funeral service companies are like that.  Stock picking expert Peter Lynch once likened funeral service companies to the plastic knife and fork production industry companies. . . . . solid, consistent, earners.  And, there is nothing wrong with that — it’s how I ran our funeral home — and we consistently churned out greater and greater earnings.


However, compare that to the Nasdaq companies, where it is apparent to me that the companies that have that investor “pizazz” are situated. . . Companies that excite investors with the idea of potential fast appreciation of stock price such as Amazon, Nvidia, Meta, Alphabet, and Tesla, sit on the Nasdaq side and move up and down in price with every piece of news about the latest silicon chips or Artificial Intelligence (AI) breakthrough.


Tom Anderson
Funeral Director Daily

I don’t think it is only about “technology” though.  Those companies are willing to look at new things and embrace what might seem “new and different” more so that “old technology” companies who, in my opinion, are more risk averse and “stay in their lane” even to the point of looking the other way at new opportunities.


My family was in the funeral business for four generations and 141 years before we sold to a regional consolidator.  When I think back over time, we had great opportunities to grow our business but were not willing to either invest the capital outside of the traditional funeral business on potential ancillary businesses or thought “we were pretty well set in the funeral business”.


Like a lot of funeral homes in the 1950’s and 1960’s our funeral home operated an ambulance service.  It was an extension of having vehicles and staff (funeral directors) on call 24/7.  However, once more stringent requirements came into being for what is now referred to as Emergency Management Services with trained Emergency Management Technicians (EMT) required, most funeral home operators sold their ambulance businesses to other operators rather than deal with the new regulations.


I’m guessing that a lot of those funeral home owners, like my dad, thought they had their hands full with the funeral home operations.  But by not moving into something “new and different” (regulated ambulance service), even though we were already operating the basic elements of it,  we passed up the opportunity to be a part of the U.S. health care market spending which has increased from a per capita amount of $146 in 1960 to $12,591 per capita in 2021.


And, the average funeral home in the 1970’s, when cremation was starting to grow, did not embrace the trend — as a matter of fact they looked upon it as competition.  That attitude allowed memorial societies and new cremation oriented businesses to gain market share that we funeral homes, didn’t seem to want.  Today, with cremation to be 70% of consumer choice by the end of the decade, traditional funeral homes maybe wish they had a different mindset about the early cremation consumers.


My point being, we don’t know what “new and different” opportunities may present themselves to those in the death care business moving forward.  It may be pet services, it may be estate services, it may be paid aftercare or grief relief services. . . . but whatever it is, we should not be so quick to dismiss it as an arm of our traditional services. . . it might not only be a service that adds value to those we serve already, it might be a business that also adds value to the bottom line and increases our stock price and value.


Disclaimer —  The author of this article holds stock positions in Security National Financial Corporation, Service Corporation International, and Park Lawn Corporation.


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