Steel City Capital: “Service Corporation International (SCI)’s Shares Could Fall Further”

Steel City Capital, an investment management company, released its second quarter 2022 investor letter. A copy of the same can be downloaded here. The fund declined 11.2% net of fees in the second quarter compared to a decline of 16.4% in the S&P 500 Index and 17.5% in the Russell 2000 Index. Market conditions like inflation, rate hikes, and fears of a recession affected the fund’s performance in the year’s first half. For more information on the fund’s top picks in 2022, please check its top five holdings.

Steel City Capital mentioned Service Corporation International (NYSE:SCI) in the letter and discussed its views about the company. Service Corporation International (NYSE:SCI) is funeral services and goods provider, headquartered in Houston, Texas. The stock of Service Corporation International (NYSE:SCI) closed at $67.49 on August 15, 2022. One-month return of Service Corporation International (NYSE:SCI) was -4.69%, while its shares gained 4.17% of their value over the last 52 weeks. Service Corporation International (NYSE:SCI) has a market capitalization of $10.641 billion.

Here’s what Steel City Capital specifically said about Service Corporation International (NYSE:SCI) in its Q2 2022 investor letter:

“Our short position in Service Corporation International (NYSE:SCI) began to bear fruit when the company reported 2Q’22 results and I think there continues to be room for the shares to fall further. At the company’s analyst day in May, management articulated long-term financial targets that included EPS growth of 8-12%, inclusive of 5-7% from organic activity and another 3-5% from inorganic activity (M&A and greenfield expansion). There are lots of moving variables associated with the outlook, but ultimately, reaching the goal is predicated upon continued strong growth in pre-need cemetery sales (which have favorable revenue recognition conditions). My view is that the recent boom in pre-need activity was a function of 1) a consumer flush with cash and “wealth-effect” driven spending with markets at all-time highs and 2) elevated awareness driven by COVID mortality, and that sooner-or-later the attractiveness of pre-paying $10,000+ for a cemetery plot that you (hopefully) won’t need for many years would become less attractive. When the company reported 2Q results pre-need growth unexpectedly rolled over. As investors come to terms with the fact that SCI is unlikely to deliver on its long-term guidance, shares should continue to retreat.”

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Service Corporation International (NYSE:SCI) is not on the list of  30 Most Popular Stocks Among Hedge Funds. As per our database, Service Corporation International (NYSE:SCI) was held by 29 hedge fund portfolios at the end of the first quarter, which was 32 in the previous quarter.

We discussed Service Corporation International (NYSE:SCI) in another article and shared Steel City Capital’s views on the company in the previous quarter. You can check our hedge fund investor letters Q2 2022 page for more investor letters from hedge funds and other prominent investors.

Disclosure: None. This article is originally published at Insider Monkey.