Stewart Enterprises, Inc. (STEI) is a good pick for investors seeking both growth and income, based on its solid third-quarter results, steady dividend yield and long-term earnings growth projection of 10.0%. Furthermore, shares of this Zacks #2 Rank (Buy) death care provider reached a 52-week high of $8.65 on October 5, shortly after announcing an acquisition.
Promising Acquisition and Strong Third Quarter
On October 2, Stewart Enterprises announced the purchase of Garden Oaks Funeral Home in Houston, Texas for an undisclosed amount. Contribution from the acquisition is likely to be small; nonetheless, Garden Oaks will boost STEI's market position in Houston.
On September 5, Stewart Enterprises posted adjusted earnings per share (EPS) of 11 cents for its fiscal third quarter, beating the Zacks Consensus Estimate by 22.2% and last year's performance by 37.5%.
Revenues increased 4.0% year over year to $129.2 million. Funeral revenue inched up 0.1% to $68.9 million and Cemetery revenue increased 8.6% to $60.4 million.
Gross profits surged 24% to $27.0 million, marking the best hike in profits for the company in four years. The gross profit expansion was driven by prudent cost-control measures. Funeral gross profit climbed 9.7% to $15.8 million and Cemetery gross profit advanced 51.4% to $11.2 million.
Its liquidity position remains sound with cash and marketable securities of $79 million and no borrowing under the $150 million credit facility at the end of the quarter.
Earnings Estimate Revised Higher
Over the past 60 days, the Zacks Consensus Estimate for 2012 increased 4.8% to 44 cents, implying year-over-year growth of 15.4%. For 2013, the Zacks Consensus Estimate is up 2% to 51 cents, representing year-over-year growth of 16.7%.
Steady Dividend Payment
Stewart Enterprises has been consistently paying dividends to its shareholders since April, 2005. The latest hike of 14% was announced in March, 2012. Currently, the company pays a quarterly dividend of 4 cents per share, affirming a dividend yield of 2.1%.
Valuation Appears Reasonable
On a price-to-book basis, Stewart Enterprises currently trades at 1.55x, a 19.7% discount to the peer group average of 1.93x. However, on a forward P/E basis, shares currently trade at 17.54x, a 25.3% premium to the peer group average of 14.00x. Based on the company's strong growth prospective, the premium looks reasonable and well supported by its long-term estimated EPS growth rate of 10.0%.
A Look at the Chart
A quick glance at the price and consensus chart reveals that the share price remains below the fiscal 2013 and 2014 earnings estimate lines, reflecting that the stock is still undervalued. Currently, the stock price is up 33.7% year to date, significantly higher than the S&P 500's return of 12.3%.
Founded in 1910 and headquartered in Jefferson, Louisiana, Stewart Enterprises is a provider of products and services in the death care industry in North America. The company currently owns and operates 218 funeral homes and 141 cemeteries in the United States and Puerto Rico. The company, which primarily competes with Service Corp. International (SCI), has a market cap of $656.6 million.
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