Last week Seeking Alpha published a fact and opinion article on Service Corporation International (SCI) entitled “Service Corporation International:  An under the radar wealth generator”.  The article was one of the most in-depth pieces I have seen on SCI, its operations, and its potential as an investment.

You can access the article here.

From my point of view it is an excellent article to read, especially if you operate a funeral home.  Again, from my point of view, much like the article title, if you own a funeral home you have access to “an under the radar wealth generator” if you can operate the business in a highly-productive fashion.  The article gives insight on what has happened in the death care space and what the author thinks may happen going forward.  And, if you are an investor, or thinking about an investment in SCI it is a must read.

Here’s some excerpts:

On Revenues and Profits: “For a rather mundane industry, Service Corporation has shown solid revenue growth through both rising prices, upselling services, and acquisitions. Over the last decade revenues increased 71.9% or 6.2% annualized. Gross profits improved an impressive 149.3% or 10.7% annualized over that time as well.” 

On Retiring or Repurchasing Shares:  “Share repurchases can be a great way for businesses to return additional cash to shareholders provided they are done at reasonable valuations. Service Corporation has pretty clearly committed to returning the bulk of FCF (Free Cash Flow) to shareholders.  . . .Service Corporation’s shares outstanding declined from 219.1 M in FY 2012 to 170.1 M for FY 2021. That’s a total reduction of 22.4% or roughly 2.8% annually. . . . really impressed that management took advantage of the overearning from the pandemic to aggressively reduce the share count. Shares outstanding declined 8.3% from FY 2019 through FY 2021.”

On Business during the pandemic years:  “Service Corporation was a beneficiary of the pandemic and was likely overearning in both 2020 and 2021. While that will sting in the short-term, as evidenced by the expected sales and earnings decline for FY 2022 vs FY 2021, the business is still on solid footing. My baseline expectation would be for Service Corporation to be able to have sales growth in the 2-4% range over time which leads to earnings or free cash flow growth in the 4-6% area.”

Seeking Alpha Conclusion:  “Service Corporation is one of those under the radar businesses that just keeps compounding over time. The sector that it operates in, funeral homes, isn’t exactly glamorous; however, with the right strategy and capital allocation those types of boring businesses can do well for patient investors.”

Related:  Service Corporation International to host Investor Day.  PR Newswire

Disclosure:  The author of this Funeral Director Daily column has a stock position in Service Corporation International.

More news from the world of Death Care:

• The Piedmont’s first conservation cemetery is rethinking burial.  Indy Week (NC)
• Podcast:  Water cremation ignites debate over dignified death.  (Transcript available also)  Undark Podcast
• Eddy Funeral Home and Williams-Lisko Funeral Homes merge.  Jamestown Sun (ND)

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