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Zacks Industry Outlook Highlights: SCI, HI, MATW, and CSV

·9 min read

For Immediate Release

Chicago, IL – October 28, 2021 – Today, Zacks Equity Research discusses Funeral Services, including Service Corporation International SCI, Hillenbrand, Inc. HI, Matthews International Corp. MATW and Carriage Services, Inc. CSV.

Industry: Funeral Services

Link: https://www.zacks.com/commentary/1817326/4-funeral-services-stocks-to-watch-on-favorable-industry-trends

The Zacks Funeral Services industry players have been seeing higher revenues as demand for their products and services increased on pandemic-induced elevated mortality. While these trends are moderating with death rates tapering, the funeral sizes are likely to increase with curbs being lifted. That said, consumers’ growing preference for cremation over traditional burials poses a threat to revenue per client.

Nonetheless, with death being inevitable, stable demand for funeral services keeps the industry going. High mortality rates, an aging baby boomer population as well as endeavors to boost business through expansion and acquisition bode well for players like Service Corporation International, Hillenbrand, Inc., Matthews International Corp. and Carriage Services, Inc.

About the Industry

The Zacks Funeral Services industry includes companies offering deathcare products and services in the United States. These companies can be categorized as – cemetery owners and operators; funeral homes; as well as burial and memorial product manufacturers. However, participants of this industry usually operate multiple business lines, such as both cemetery operations and funeral homes.

Funeral homes prepare bodies for burial or cremation and offer space for memorial services, alongside coordinating other things associated with burial. Cemetery operations involve the sale of burial and memorial products, among other things.

Manufacturers produce burial and memorialization products like urns, caskets and headstones, to name a few.  Services booked in advance fall under the pre-need category, while services booked due to a sudden demise come under the at-need category.

3 Trends Shaping the Future of the Funeral Services Industry

Favorable Demand: While the funeral services industry is unpleasant by nature, the inevitability of death keeps demand for its services intact in general. Thus, industry players are likely to benefit from high mortality rates and an aging baby boomer population.

In this regard, the entire funeral process that involves embalming as well as the use of caskets, urns, vehicles, funeral staff and equipment, among others, acts as a major revenue source for industry participants. Additionally, companies are focused on strengthening their base through the expansion and acquisition of funeral homes as well as the development of cemetery property to generate higher revenues.

Pandemic-Related Trends: Companies in the funeral services space have been witnessing elevated demand for products and services owing to increased deaths resulting from the pandemic. Spike in coronavirus-related deaths pushed up demand for funeral homes, crematories and morgues.

Death rates are, however, normalizing with vaccines being rolled out. Though these trends may weigh on year-over-year comparisons of at-need revenues, pre-need property sales are likely to increase. Also, with curbs being lifted, families are likely to get greater access to cemeteries, which will increase funeral sizes and revenues of players in the funeral services space.

Higher Cremation Rates Hurt Revenue Per Client: Higher inclination toward cremation over traditional funerals poses a threat to revenue per client of companies in the funeral services space. Cremation costs much lower than a traditional funeral, with the average cremation service cost being roughly $2,500. In fact, we note that the pandemic has fueled this trend, with families choosing cremations over elaborate traditional funerals.

Zacks Industry Rank Indicates Robust Prospects

The Zacks Funeral Services industry is housed within the broader Zacks Consumer Staples sector. The industry currently carries a Zacks Industry Rank #58, which places it in the top 23% 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 positive 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 beginning of July 2021, the industry’s consensus earnings estimate for 2021 has jumped 10.5%.

Let’s look at the industry’s performance and current valuation.

Industry Versus S&P 500 and Sector

The Zacks Funeral Services industry has outperformed the Zacks S&P 500 composite as well as the broader Zacks Consumer Staples sector over the past year.

The industry has rallied 51.3% over this period, compared with the S&P 500’s growth of 37.8%. Meanwhile, the broader sector gained 11.9% in the said time frame.

Industry's Current Valuation

On the basis of forward 12-month price-to-earnings (P/E), which is commonly used for valuing consumer staples stocks, the industry is currently trading at 19.25X compared with the S&P 500’s 21.55X and the sector’s 19.22X.

Over the past five years, the industry has traded as high as 23.78X and as low as 14.07X, with the median being 17.78X.

4 Funeral Services Stocks to Keep a Close Eye on

Service Corporation: The company has been benefiting from higher funeral services performed and increased burials in its cemeteries amid the pandemic-led higher mortality. Also, a robust cost structure has been aiding the company for a while. Apart from this, the company’s focus on making property developments is noteworthy. We note that Service Corporation is one of North America’s leading providers of funeral and cemetery services.

On its second-quarter earnings call, management lifted its 2021 earnings per share guidance. The Zacks Consensus Estimate for the company’s 2021 bottom line has remained stable over the past 30 days. Shares of Service Corporation have gained 49.1% in the past year. The Zacks Rank #3 (Hold) company has a trailing four-quarter earnings surprise of 45.5%, on average.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Carriage Services: Shares of the Zacks Rank #3 company have soared 75.5% over the past year. With a long-term earnings growth rate of 15%, the company appears well placed to benefit from its robust expense management and focus on solidifying base – especially its cemetery portfolio.

The company has been gaining on higher revenues stemming from increased pandemic-related deaths. This provider of funeral and cemetery services and merchandise has a trailing four-quarter earnings surprise of 34.3%, on average. The consensus estimate for its 2021 earnings has remained unchanged in the past 30 days.

Hillenbrand: Hillenbrand’s Batesville segment is engaged in manufacturing and selling funeral services products such as caskets, urns, containers, technology solutions for funeral homes and customers as well as other memorialization products. The segment has been benefiting from its effort to enhance customers’ experience, manufacturing excellence, product innovation and dependable delivery.

Increased deaths from the COVID-19 pandemic have been driving revenues at this segment, thanks to increased burial casket sales. Hillenbrand has a trailing four-quarter earnings surprise of 22.3%, on average. This Zacks Rank #3 company’s shares have rallied 57.8% in a year’s time frame. The consensus mark for its fiscal 2021 earnings per share has remained stable in the past 30 days.

Matthews International: Shares of this Pittsburgh, PA-based company have surged 66.3% in the past year. The company’s Memorialization segment provides products like caskets, memorials and cremation equipment – mainly to cemetery and funeral home customers. The segment has been gaining on increased casket sales stemming from the pandemic.

Also, higher sales of cremation equipment and cemetery memorial products have been aiding. The Zacks Rank #3 company’s solid funeral home products business bodes well. The Zacks Consensus Estimate for its fiscal 2021 bottom line has remained the same in the past 30 days. Markedly, the company has a trailing four-quarter earnings surprise of 28.9%, on average.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.

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