Finance

A Tale of Two Stocks

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Much like many of you, I’m an amateur investor that likes to watch what is happening to public sector stocks in the death care industry.  Today I’m going to take a look at a couple of stocks that I own in the industry – Service Corporation International and Carriage Services — and try to deduce what has led to their divergent fortunes of the stock prices in the past year.

First of all when you look at the companies, they are both in what I term the retail sector of death care services.  By that I mean that they bring in most of their revenues by direct to the consumer mortuary services –  such as funerals and cremations – and cemetery services.  Service Corporation International (SCI) is the market leader in the U.S. and, according to E-Trade, operates 1502 funeral service operations and 470 cemeteries.  Carriage Services (CSV), on the other hand, is quite a bit smaller and the same source indicates that CSV operates 181 funeral homes and 32 cemeteries.

Using five years of data, as presented by E-Trade, we can look at the financial numbers for the calendar year financials ended from 12/31/2013 thru 12/31/2017.  It is interesting to note the similarities in that time frame.

Carriage Services total revenue has increased from $213 million in 2013 to $258 M in 2017.  That is a 21.8% increase or a 5.28% annualized increase.  SCI has had their total revenue, in the same time period, increase from $2.55 Billion to $3.095 B which is a 21.3% increase which would be annualized to a 5.34% increase.  The percentage increase of the companies revenue is almost identical.

When you look at the price to earnings ratios of both companies they are similar at 16.39 P/E for SCI and a 17.95 P/E for Carriage.  That actually indicates a higher premium on Carriage stock than SCI stock.

However, when you look at the performance of the stock over the past five years, Carriage sold at just over $20 per share on New Year’s Day 2014 and is at about the same level today ($20 per share) after reaching a high of $29 per share in late 2016.  SCI stock, on the other hand, was below $20 per share on January 1, 2014, and continues an almost steady climb to almost $45 per share today.

My hypothesis on the trends of these two stocks is this.  Operating income for SCI peaked at $578 M in 2014 and then dipped for two years before rising back to $569 M in 2017.  Carriage Services operating income peaked later – in 2016 at $49.6 M and then dropped by 1.4% in 2017.  From my limited point of view, I believe that investors now believe that SCI has seen the advent of the direct cremation element, dipped in profitability while trying to figure their business model out, and has now returned with a renewed sense of how to profit from that business.  Again, from my limited point of view, their investment in the Neptune Society brand may very well be helping them in that respect.

My perspective on Carriage Services is that they also, like most funeral homes across America, are seeing the direct cremation percentage rise in their full service funeral homes and they have not yet, at least according to investors, figured out how to right the ship.  They may very well figure it out over time, and if they do their fortunes will also rise.  And if they do, many independently operated funeral homes will look to that business model to emulate.

Again, from my point of view, one of the advantages SCI has that helped them in regaining lost profits is that they operate in some of the most populated markets in the country.  In my opinion, when their service mix started moving towards a higher percentage of direct cremation, they had the ability to pull in more market share to compensate for lost revenue.  Carriage Services, which operates in less densely populated areas of the country, like most individually operated funeral homes,  will not have that advantage.

In any regard, this is just one amateur’s opinion. However, both companies will be reporting quarterly results in the next ten days so those reports will be interesting to see.

 

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