I woke up Tuesday morning and noticed that Stonmor’s stock had plunged almost 11%.  In checking it out I noticed that the company issued a statement that they are in technical default on their revolving credit agreement and they mentioned that they may have more adverse events occur in mid-August.  The stock  was trading at Monday’s close at  $7.97 — that is down from a high of over $25 just over a year ago.  All analysts that follow Stonmor have listed it as a “Hold” stock for now.  You can learn a little more about this event from the Motley Fool.

I also checked up with the other two traditional funeral and cemetery operating companies that are publicly traded, Service Corporation International and Carriage Services.  It was interesting to note that their Price/Earnings (PE) ratings were almost identical with SCI at 21.6 and Carriage Services at 21.5.

SCI closed Monday at $34.05 per share and the consensus of the analysts that follow the stock rate it a “Buy” with a near term upside to $37.50 per share.  Reaching that target price would be a 10% increase.

Carriage Services closed Monday at $26.69 per share and the consensus of analysts that follow the stock rate it a “Buy” with a near term upside of $34.50 per share.  Reaching that target price would be a whopping 29% increase.

Funeral Director Daily take:  I think there is something for the average funeral home owner/operator to learn here when you compare these companies.  While all three of these companies own and operate both funeral homes and cemeteries, in my opinion they operate very differently.

When I was a child in school I can remember my dad telling me that funeral service was a very noble profession.  If you decide to go into it you won’t get rich overnight but you will make a good income a nickel at a time and you will be seen as a valued member and cornerstone of your community.  Those are virtually my dad’s exact words – and over 45 years later – that is exactly what happened to me.

Also, back in the 1990s when mutual fund investing was becoming the rage, Peter Lynch, who operated the Fidelity Magellan Fund and was wildly successful wrote a book entitled, “One Up on Wall Street”.  Part of his advice was to have a funeral services company like Service Corporation International in your portfolio because funeral service was, just as my father explained, a solid performer that chugged on like the little engine that could and over time created exceptional value.

Service Corporation International and Carriage Service act like the small family funeral service company that uses its cash flow to reinvest in its properties, makes more smart acquisitions, and just keep chugging along – instead of buying toys for themselves.  They work hard at the service end of their business to satisfy customers. They are not like the small funeral home owner who has a great year and instead of investing in his business goes out and buys that new Jaguar to drive around town.

Stonemor Partners, in my opinion, operates their funeral homes differently than the advice I was given from my father.  From my point of view, they seem very sales related and less service related.  I say this because, in many of their public press releases they explain how they are building their “sales force”.  Again, in my opinion, the funeral and cemetery business is driven by service and not by sales — give great service and sales will be the result.  It appears to me that instead of building for the future they have appropriated their cash-flow to the stockholders (owners) instant gratification benefit.  I say this because what first attracted me to the stock was the dividend that it paid. . . . in my case I paid about $25 per share and received a $2.66 annual dividend which is over a 10% return.

It will be interesting to see what happens with these three large players in our industry.  I’m guessing that Service Corporation International and Carriage Services will continue to chug along as their track record indicates.  As for Stonmor, I believe that the jury is still out as to their operating philosophy and whether it will work or not.  Time will tell.[wpforms id=”436″ title=”true” description=”true”]