Here's Why You Should Give Service Corporation (SCI) a Miss
Service Corporation International SCI has been bearing the brunt of tough macroeconomic trends, increasing interest rates and higher operating costs and expenses.
This current Zacks Rank #4 (Sell) company has a market capitalization of $9.2 billion. Year to date, SCI has lost 12.1% compared with the industry’s decline of 8.2%.
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Let’s discuss the factors that might continue to affect the firm’s performance in the near term.
Lower EPS View: Despite strength across its businesses, SCI remains concerned about inflationary environment and its related impact on consumer discretionary spending as well as the impact of high interest rates.
Service Corporation expects 2023 adjusted earnings per share (EPS) in the range of $3.40-$3.60, lower than $3.45-$3.75 projected earlier. The estimated figure suggests a decrease from $3.80 reported in 2022.
Cost Constraints: The firm has been encountering inflationary pressure for a while now. In second-quarter 2023, gross profit dipped 2% year over year to $261.5 million. Cost of revenues was nearly $752 million compared with $724.2 million in the year-ago quarter.
Also, interest expenses jumped to $59.5 million from $40.6 million a year ago. These factors also weighed on the bottom line, which tumbled year over year in the second quarter. Continuation of such trends continues to be a concern. Management expects continued pressure from rising interest costs on its variable-rate debt, which had a 9 cent negative impact on second-quarter earnings per share.
High Debt Level: High debt level is another woe for Service Corporation. For instance, in the second quarter, its long-term debt rose 4.7% on a sequential basis to $4,452.4 million. Also, in the first six months of 2023, SCI incurred capital expenditures of $177 million. However, it exited the second quarter with cash and cash equivalents of $172.5 million.
Southbound Estimate Revisions: Earnings estimates have been trending south over the past couple of months, with four downward estimate revisions for 2023. Notably, the Zacks Consensus Estimate for 2023 EPS is pegged at $3.46, lower than $3.51 estimated 60 days ago.
3 Promising Staples Stocks
Here we have highlighted three better-ranked stocks, namely J&J Snack Foods Corporation JJSF, MGP Ingredients, Inc. MGPI and Grocery Outlet Holding Corp. GO. While J&J Snack Foods and MGP Ingredients sport a Zacks Rank #1 (Strong Buy) each, Grocery Outlet carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
J&J Snack Foods is an American manufacturer, marketer and distributor of branded niche snack foods and frozen beverages for the food service and retail supermarket industries. JJSF has a trailing four-quarter earnings surprise of 4.7%, on average. The Zacks Consensus Estimate for JJSF’s current fiscal-year sales and EPS suggests growth of 11.1% and 62.3%, respectively, from the year-ago reported figures.
MGPI produces and markets ingredients and distillery products for the packaged goods industry. MGP Ingredients has a trailing four-quarter earnings surprise of 18%, on average. The Zacks Consensus Estimate for MGPI’s current financial-year sales and EPS implies rises of 5.8% and 10.4%, respectively, from the year-ago reported numbers.
Grocery Outlet is a retailer of consumables and fresh products. GO has a trailing four-quarter earnings surprise of 14.3%, on average. The Zacks Consensus Estimate for GO’s current financial-year sales and EPS indicates improvements of 11.2% and 4.9%, respectively, from the year-ago reported numbers.
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Service Corporation International (SCI) : Free Stock Analysis Report
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MGP Ingredients, Inc. (MGPI) : Free Stock Analysis Report
