Death Care Index still lags the market

We checked into Funeral Director Daily’s proprietary Death Care Index (DCI) after the markets closed on Monday, the last day of November.  That check-in allowed us to take a look at the eight stocks that make up the DCI and see where they were individually and as a group and how that group compared to the Dow Jones average, the S & P 500, and the technology based Nasdaq.

And, while the Dow Jones counted November 2020 as its best November since 1928 and the month of November as its best percentage month in 33 years (1987), the Death Care Index (DCI), as a whole, still lagged behind those indexes as to an 11-month return.

Using the closing prices as of November 30, for the first 11 months of 2020, the Dow Jones Industrial Average has increased at a 3.86% clip, the S & P 500 at a 12.1% clip, and the technology heavy Nasdaq composite has jumped an incredible 40.48%.

However, one share of each of the eight stocks that make up the DCI were worth a total of $303.73 on January 1, 2020, and as of Monday, November 30, 2020, they were worth a total of $299.94. . . . not only lagging the other indexes, but showing a loss of 1.25%.

To be sure, there were individual gainers among the DCI.  Traditional funeral home companies like Service Corporation International and Carriage Services chugged along with 5.7% and 6.3% gains respectively, Hillenbrand Industries, parent company of Batesville Casket gained 12.4%, and Security National Financial Corporation surged 43.8%.  On the other side of the ledger, Matthews International showed a 30% drop in their stock price over those 11 months.

From my point of view, it was also almost uncanny how the DCI stocks have hovered around their January 1 numbers.  Here is how the DCI stocks have performed from January 1, 2020 thru November 30, 2020:

Company                                                  Stock Price Gain/Loss –  1/1/20 thru 11/30/20     

Service Corporation Intl.                                                   +  5.7%

StoneMor                                                                              +  0.01%

Carriage Services                                                                 +  6.3%

Park Lawn Corporation                                                      –   5.5%

Hillenbrand Industries                                                       +12.4%

Assurant                                                                                 –  1.5%

Matthews International                                                      -30.0%

Security National Financial                                                +43.8%

Funeral Director Daily take:  I find it really interesting where these numbers as to company valuations are today.  From my point of view, the funeral home and cemetery companies such as SCI, Carriage Services, and Park Lawn have all done really well in adapting to the COVID-19 death care reality.  And, to a lesser extent, StoneMor is in the same position.

Tom Anderson
Funeral Director Daily

I think all four of those companies have shown over the past nine months that they have came to grips with the reality of the situation that was unpredictable last February.  The thought process, then,  was that they would probably get more deaths due to the COVID issue, but that they would not be able to garner full revenue from those deaths because of the social distance rules.

However, after taking an initial hit, they all commented in their latest quarterly report that their revenue per service is coming back and they are stabilizing that number.  In addition, the number of deaths has increased and they all had record or near record quarters.  So, my question is, “Why has their stock prices not moved more to reflect this?”  Especially in light of what some S & P 500 stocks have done.

Here’s how I come down with my answer.  Many people will tell you that a stock price is not where your company is at today, but where an investor thinks it is going in the next 6-12 months.  I believe that funeral home operating company stocks have not been more rewarded for their efforts in profitability because investors look to these greater number of COVID related deaths in the past nine months and recognize that these companies, if we get control of the pandemic with a vaccine, cannot duplicate those results moving forward, simply because there will be less deaths.

In essence, investors see these deaths, from a financial point of view, as “pull forward” deaths that these companies will not reap in upcoming quarters.  As a matter of fact, the quarterly comparables will be tough to duplicate moving forward, especially in the latter half of 2021.  In reality, it is the simple dynamic of the death care business world, whereas people only die once.

When you compare that to the rest of the business world, where the pandemic is providing opportunities to make use of technology and the potential for less costs for square footage be it a retail establishment, restaurant, or office setting, the belief seems to be that the non-death care business world probably has a better chance of sustaining the increased business or the lower costs for the long haul than the death care industry.

For a simple point of view, that is why I believe that the death care stock prices are lagging the major indices.  The exceptions have been Security National Financial Corporation (SNFC) and Hillenbrand Industries.  My take on that is that SNFC is a very diverse company with parts of its death care businesses being in the financial world — insurance and  assignments.  And, while their funeral and cemetery business has performed well, I really think it is the success of those financial business elements, as well as its mortgage business, that has it trending to the upside.

As for Hillenbrand Industries, their Batesville Casket segment had a tremendous July through September quarter, but I really think the stock price increase has came from a stock that was depressed earlier in the year awaiting the company’s integration of the acquisition of the Milacron company.  To be sure, Batesville has performed well because of “pull forward” deaths, but the integration of Milacron has developed without major problems and, in my opinion, is a big reason the stock has risen.

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

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