It’s been an interesting first quarter if you are invested in the stock market.  We’ve seen interest rates continue to rise and we’ve seen popular opinion on what that might do to technology companies vary.  In addition, we’ve seen technology companies reduce their workforce even as some of their stock prices have increased. . . . .maybe that’s the correlation. . . .

 

On the death care side of the public equity markets we’ve seen domestically in the United States the Funeral Director Daily Death Care Index (DCI) rise about 5% for Q1 2023.  That rise in value of the index that groups death care companies Service Corporation International, Carriage Services, Park Lawn Corporation, Matthews International, and Security National Financial Corporation into the DCI might best be looked at, for the quarter, as a sum of the parts rather than a concise look at the funeral home, cremation, and cemetery business as a whole.

 

For instance, while the value in the stock of Service Corporation International and Park Lawn Corporation remained somewhat static, investors seemed to favor DCI companies Matthews International and Carriage Services during the quarter.  And, more than likely because of their exposure to interest rate hikes with the mortgage section of their business, the stock of Security National Financial Corporation tumbled over 14% for the first quarter.

 

The DCI overall raised its value to $161.29 per share from $153.53 as of December 30, 2022,  — the last day of trading in 2022’s 4th Quarter.  That’s an increase of right at 5.0%. . . . and somewhat comparable with the S & P 500 Index of the broader public businesses which rose at 7% for the same period.  For 1Q 2023 the Dow Jones Industrial average remained virtually static and the technology top-heavy NASDAQ rose almost 17% after falling over 33% in 2022.

 

Matthews International, the parent company of Aurora Casket and Matthews Cremation, was the leader among the DCI companies for the first quarter of 2023.  The company increased their value from an end of year 2022 value of $30.44 per share to $36.06 per share as of last Friday. . . . that’s an increase of 18.4%.

 

And, Carriage Services raised their value in the first quarter of 2023 from $27.54 per share to $30.52 per share for an increase in value of 10.8%.

 

Funeral Director Daily take:  I’m still a lit bit amazed at how the investing public looks at three companies who virtually do the same thing.  SCI, Carriage Services, and Park Lawn Corporation are all public companies who are in the retail to consumer business of providing death care services — pretty much in a similar fashion.  However, when looked at by Price to Earnings ratio values (P/E), Park Lawn carries a multiple of 27, SCI a multiple of 19, and Carriage Services a multiple of 11.  In essence the stocks of those companies are valued at a low range of 11 times to a high range of 27 times earnings.

 

In my opinion, Matthews International has recently broke out from the others not because of their very steady death care business aspects but because of their investment in the renewable energy field from a different company division.  I think they have made good progress in getting known in the “new energy” technology field while at the same time growing their solid death care business.

 

As I look at the funeral home operating companies I think that there are reasons to be optimistic and also reasons to look at their abilities to increase profitability with some skepticism going forward.  Optimistically, I think mergers and acquisitions will present many opportunities in the next 12-24 months for them.  This should allow them to add revenue and synergies as they continue to grow. . . which should increase profitability.  And, as the Baby Boomer population starts to pass away, there should be a growth in the actual raw numbers of deaths also.

 

However, on the more pessimistic side, the Federal Funds rate has increased to 4.83% currently from its number of five years ago (March 2018) of 1.51%.  That means that financing costs to buy these businesses are going to be more and if you couple that with the threat of continuing inflationary operating costs, such as personnel, and the potential for the public to choose less costly death care services moving forward, there is risk for decreased margins to these operators.

 

It’s an interesting time in the death care business space and by watching what is happening in the public death care equity markets you can get an idea of what the investor thinks of the opportunities.

 

An added thought — Internationally we have seen, in the first quarter of this year, two non-solicited buy-out offers of public equity death care companies — Dignity plc in Great Britain and InvoCare in Australia by private equity.  With the traditional stability of death care, the appearance of “high-tech” venture capital availability slowing down, and some of these companies with market capitalization of under $1 billion, might we see private equity entertain those ideas domestically?  Just a thought.

 

Disclaimer — The author of this article for Funeral Director Daily holds stock positions in Service Corporation International, Carriage Services, Park Lawn Corporation, and Security National Financial Corporation.

 

More news from the world of Death Care:

• New technology introduces water cremation.  Radio Broadcast/Podcast.  Bose State Public Radio – NPR (ID)
• This public crematory will soon be operational in Bellingham.  The Bellingham Herald (WA)

 

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