The Zacks Funeral Services industry comprises companies that offer deathcare products and services in the United States. Firms in this space sell cemetery property as well as related products and merchandise including caskets; cemetery interment rights; burial vaults; garments, and stone and bronze memorials. Further, these companies possess funeral service locations, cemeteries, funeral service/cemetery combination locations and crematoria.
Let’s take a look at the industry’s three major themes:
- Although the funeral services industry is unpleasant by nature, the inevitability of death keeps demand for its services intact. Thus, industry players are likely to benefit from high mortality rates and the aging baby boomer population. In this regard, the entire funeral process that involves embalming as well as use of caskets, vehicles, funeral staff and equipment among others acts as a significant revenue source for industry participants.
- Rising demand for cremation over traditional funerals has hurt revenue per client in the funeral services space. Cremation costs significantly less than traditional funeral, with the average cremation service cost being roughly $2,500.
- Availability of funeral-related products on the e-commerce platform and use of environment-friendly alternatives for burials are quite a threat to industry participants. Evidently, consumers are choosing shrouds and woodland burials over coffins and graveyards, while tech advancement is increasing the popularity of video tributes. Apart from this, demand for the industry’s services is dependent on seasonal factors and is usually higher in winters given the rise in cases of influenza and pneumonia.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Funeral Services industry is housed within the broader Zacks Consumer Staples sector. The industry currently carries a Zacks Industry Rank #18, which places it in the top 7% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of an impressive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually becoming more confident about this group’s earnings growth potential. Since the end of December 2018, the industry’s consensus earnings estimate for the current year has increased 14.6%.
Industry Lags on Stock Market Performance
The Zacks Funeral Services industry has lagged the Zacks S&P 500 composite as well as the broader Zacks Consumer Staples sector over the past year.
The industry has lost 8.4% over this period against the S&P 500’s gain of 4.2%. Meanwhile, the broader sector has risen 9.6%.
One-Year Price Performance
Industry’s Current Valuation
On the basis of forward 12-month Price-to-earnings (P/E) ratio, which is commonly used for valuing consumer staples stocks, the industry is currently trading at 15.1X compared with the S&P 500’s 17.01X and the sector’s 19.67X.
Over the past five years, the industry has traded as high as 25.43X, as low as 17.85X, and at the median of 21.73X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
Steady demand for funeral services keeps the industry going. Also, the aging baby boomer population presents solid opportunities to players in this industry. However, consumers’ increasing preference for cremation services as well as competition from e-commerce sales channels keeps funeral services companies under pressure.
There are two stocks in the Funeral Services space currently with a Zacks Rank #2 (Buy). Also, we are presenting two stocks with a Zacks Rank #3 (Hold) each, that are well positioned to capitalize on the opportunities. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Carriage Services, Inc. (CSV): The Zacks Consensus Estimate for this Zacks Rank #2 company has remained stable in the last 30 days. The deathcare services provider has an estimated long-term earnings growth rate of 15%. Markedly, Carriage Services has seen its shares rally close to 40% year to date.
Price and Consensus: CSV
Matthews International Corporation (MATW): The Zacks Consensus Estimate for this Zacks Rank #2 company has remained stable in the last 30 days. Further, the company delivered positive earnings surprise of 1.1% in the last reported quarter.
Price and Consensus: MATW
Service Corporation International (SCI): For this deathcare services provider, the Zacks Consensus Estimate for current-year earnings has remained unchanged over the past 30 days. This Zacks Rank #3 stock has gained almost 17% in the year-to-date period. The company has an estimated long-term earnings growth rate of 11.2%.
Price and Consensus: SCI
Hillenbrand, Inc. (HI): The Zacks Consensus Estimate for this Zacks Rank #3 company has remained stable in the last 30 days.
Price and Consensus: HI
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