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Here's Why Service Corporation (SCI) Stock Appears Promising

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Service Corporation International SCI seems to be on a solid footing, with its shares having grown almost 10% in the past three months compared with the industry’s rise of 8.2%. This deathcare products and services provider has been gaining on higher funeral services performed and increased burials in its cemeteries, which along with a solid cost structure aided its first-quarter 2021 results. Also, a focus on making property developments is noteworthy.

During the quarter, both earnings and revenues grew year over year and topped the Zacks Consensus Estimate. Markedly, revenues rose in the Cemetery and Funeral segments. Based on the sturdy performance witnessed during the first quarter, management raised its bottom-line projection for 2021. Incidentally, the Zacks Consensus Estimate for 2021 has gone up 7.4% to $2.89 per share over the past 30 days. Let’s take a closer look at the upsides of this Zacks Rank #2 (Buy) company.

Pandemic-Led Deaths Continue to Aid, View Raised

The company has been gaining on higher funeral services performed as well as increased burials in its cemeteries amid the pandemic-led increased mortality. During the first quarter, the bottom line was backed by elevated gross profit resulting from higher funeral services and burials performed along with a robust increase in cemetery recognized preneed revenues. Further, the bottom line gained from reduced shares outstanding and a decline in interest expenses.

Service Corporation International Price, Consensus and EPS Surprise

Service Corporation International Price, Consensus and EPS Surprise
Service Corporation International Price, Consensus and EPS Surprise

Service Corporation International price-consensus-eps-surprise-chart | Service Corporation International Quote

Management now envisions adjusted earnings per share of $2.70-$3.00 compared with $2.50-$2.90 projected earlier. The company’s guidance for the year is wider than usual due to the uncertainty surrounding the COVID-19 impact. We note that the company’s earnings came in at $2.91 per share in 2020. Additionally, management informed that the company is on track with its long-term earnings growth framework. Accordingly, it will maintain focus on its core strategies that include growing revenues by remaining relevant to client families, leveraging scale and maximizing capital deployment opportunities.

Solid Cemetery Revenues

Revenues in the segment have been increasing for the past few quarters. During the first quarter of 2021, segment revenues rose 53.8% to $458.5 million, thanks to increased core revenues. Core revenues gained from an increase in both atneed and total recognized preneed revenues. Comparable Cemetery revenues improved 53.9% year over year on the back of higher core revenues. This, in turn, was fueled by elevated recognized preneed revenues owing to solid comparable preneed cemetery property sales production. Moreover, growth in atneed revenues, which stemmed from a rise in burials performed, was an upside. The company continued to gain from an efficient sales force, prudent utilization of customer relationship management system as well as improved conversion rates from direct mail and digital lead campaigns. Further, the company continued to witness elevated conversion and close rates, thanks to customers’ greater awareness of the possible effects of coronavirus. It also saw an increase in location traffic as a result of greater funeral services and burials performed. Solid revenues, together with an improved cost structure, also fueled segment gross profit and margin.

Expansion Endeavors on Track

The company, which shares space with Hillenbrand, Inc. HI, is committed to pursuing strategic buyouts for both its segments and building new funeral homes to generate greater returns. In first-quarter 2021, the company incurred capital expenditures of $42.3 million. The company undertook several cemetery development and construction projects. These investments are touted to be accretive to the company in the near term. Expenditures associated with capital enhancements at current locations and cemetery development are anticipated in a band of $235-$255 million for 2021.

We believe that the abovementioned drivers are likely to help Service Corporation continue climbing the growth ladder.

2 Other Stocks Worth a Look

Carriage Services CSV has a Zacks Rank #2 and its bottom line outpaced the Zacks Consensus Estimate by 36.4% in the trailing four quarters, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Matthews International MATW has a Zacks Rank #2 and its bottom line outpaced the Zacks Consensus Estimate by 32.2% in the trailing four quarters, on average.

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