For Immediate Release
Chicago, IL – March 4, 2022 – Today, Zacks Equity Research discusses Service Corp. International SCI, Hillenbrand, Inc. HI, Matthews International Corp. MATW and Carriage Services, Inc. CSV.
Industry: Funeral Services
The Zacks Funeral Services industry players have been generating increased revenues as demand for their products and services rose on pandemic-induced high mortality. While these trends are moderating with death rates tapering, the funeral sizes are growing with curbs being lifted. That said, consumers' rising preference for cremation over traditional burials remains a threat to revenue per client.
Nonetheless, with death being inevitable, steady 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 Corp. 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 vaccinations rolled out. Though these trends may weigh on year-over-year comparisons of at-need revenues, pre-need property sales have been increasing. Also, with curbs lifted, families are getting greater access to cemeteries, increasing funeral size 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 many 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 #6, which places it in the top 2% 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 a 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 November 2021, the industry's consensus earnings estimate for 2022 has jumped 15.8%.
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 19.4% over this period, compared with the S&P 500's growth of 14.4%. Meanwhile, the broader sector has risen 6.1% 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 15.98X compared with the S&P 500's 19.16X and the sector's 19.45X.
Over the past five years, the industry has traded as high as 23.78X and as low as 14.07X, with the median being 17.63X.
4 Funeral Services Stocks to Keep a Close Eye On
Matthews International: The company's Memorialization segment provides products like caskets, memorials and cremation equipment – mainly to cemetery and funeral home customers. The segment has increased casket sales and cemetery memorials due to the pandemic. Also, growth in cremation equipment sales and mausoleum projects has aided Matthews International. The Zacks Rank #1 (Strong Buy) company is also benefiting from efficient pricing.
The Zacks Consensus Estimate for Matthews International's fiscal 2022 bottom line has jumped 7.2% in the past 30 days. Markedly, MATW company has a trailing four-quarter earnings surprise of 14.5%, on average. Shares of this Pittsburgh, PA-based company have declined 10.4% in the past year.
You can see the complete list of today's Zacks #1 Rank stocks here.
Service Corp.: The company has been benefiting from higher funeral services performed, increased burials and elevated pre-need sales amid the pandemic-led higher mortality. Also, a robust cost structure has been aiding the company.
Apart from this, Service Corporation'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 fourth-quarter 2021earnings call management lifted its 2022 earnings per share guidance.
The Zacks Consensus Estimate for the company's 2022 bottom line has risen 6.4% over the past 30 days. Shares of SCI have gained 33.7% in the past year. The Zacks Rank #2 (Buy) company has a trailing four-quarter earnings surprise of 43.8%, on average.
Carriage Services: Shares of the Zacks Rank #2 company have soared about 53% over the past year. With a long-term earnings growth rate of 15%, Carriage Services appears well placed to benefit from its robust expense management and focus on solidifying base – especially its cemetery portfolio. CSV 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 26.7%, on average. The consensus estimate for Carriage Services' 2022 earnings has risen 0.9% 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.
Hillenbrand has a trailing four-quarter earnings surprise of 7.9%, on average. This Zacks Rank #2 company's shares have risen 1% in a year's time frame. The consensus mark for HI's fiscal 2022 earnings per share has improved 2.9% in the past 30 days.
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