A report by JSTC on ValueInvestorsClub provides an investment thesis for Service Corp International (NYSE:SCI). We will summarize the bullish stance of the author in this article. SCI shares were trading at $74.40 when the report was published, vs. the closing price of $77.72 on Jan 03.
A funeral procession travelling along a rural road with a hearse pulling a casket covered in flowers.
SCI provides deathcare products and services in the United States and Canada. Its funeral service and cemetery operations comprise funeral service locations, cemeteries, funeral service/cemetery combination locations, crematoria, and other businesses. It captures a 15% market share and is the largest player owner of funeral homes and cemeteries in North America.
SCI uses its size to maintain operational efficiency and focuses on customer-centric services. Its capital investment focuses on M&A, with these acquired companies leveraging the scale of SCI to improve return on investment. The realization of synergies is another key component of SCI’s acquisition strategy that improves margins even when revenue increases. SCI has also sought innovative practices to enhance the experience. Some of the latest services include digital presentations that can be viewed from home and interactive obituaries supported by mobile applications.
SCI’s wide outreach makes it a reliable player in a fragmented sector. It has 1500 funeral service locations and 500 services. It is an integrated service provider that even caters to activities like memorialization, visitations, embalming and transportation. This has enabled SCI to tap into the pre-need market where funeral arrangements are booked in advance. The payment received from these channels has created a backlog worth four times its current revenue.
SCI trades at 12x EBITDA, below the multiple of the S&P 500 which is 14x. Recent acquisitions of Invocare and Dignity have implied a valuation in the mid-teens. SCI has also been buying back shares and combined with a mid-teen growth in EPS, the value accretion is palpable. A generous dividend yield of 1.5-2% is also another reason why the stock is a good investment.
While we acknowledge the potential of SCI as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than SCI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
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