Death and taxes — these are the two unfortunate inevitabilities in life. Thankfully, there are a number of resources that can help us manage these obligations.
While memorial service companies have a morbid reputation by default, they actually represent a crucial element in both our economy and culture. Such services allow families to gain closure and to secure their loved ones’ legacy. Indeed, the uncomfortably necessary function of memorial service companies means that the industry itself must be viable for the benefit of future generations.
Whether we like it or not, demographic trends in the U.S. force us to confront reality. As of 2015, the “baby boomer” generation — or those born between 1946 and 1964 — exceeded 75 million, according to the U.S. Census Bureau. Of that figure, 61%, or a little more than 46 million people, are aged 65 and older.
Although life expectancy for the average American has risen considerably to nearly 80 years, the demographic trends indicate that, sooner or later, the internment industry must service the needs of millions of families.
But it’s not just baby boomers that are the drivers for the memorial services industry. Millennials, or people born between 1982 and 2000, number 83 million strong. They are also more than a quarter of the U.S. population.
However, an important point to note here is that Millennials are more ethnically diverse than previous generations. This has significant implications for the memorial services industry, as different cultures may have distinct manners in which they preserve a family member’s legacy.
Finally, the most obvious factor supporting memorial service companies is inevitability. Regardless of demographic trends, people pass away due to a variety of causes. On average, more than 55 million people die each year. While no one wants to face the reality of their mortality, memorial service companies are at the front line of a very crucial sector of society.
Here are four companies that help protect our loved ones’ memories.
Memorial Services Stocks to Buy: Service Corporation International (SCI)
Founded in 1962, Service Corporation International (SCI) is “North America’s largest provider of funeral and cemetery services,” according to the company’s website.
What sets SCI apart from the competition is its broad services network, from final arrangement planning to different burial options. This network and the experience of SCI helps ease the burden for families struggling through an especially sensitive time.
SCI has an extensive asset portfolio which was bolstered in 2011, when Service Corp. bought a majority equity stake in The Neptune Society, Inc. Neptune is the largest cremation services provider in the U.S., which offers a distinct advantage for SCI. Cremation is less costly for families, and thereby from a business perspective, less profitable. However, Neptune’s market dominance in this segment should allow SCI to make up for the margins through higher volume.
The financial markets are looking favorable for SCI shareholders. Over the past three months, SCI is up 18%, while year-to-date, the stock has gained 3%. Although it’s not mind-blowing performance, it compares favorably to the benchmark SPDR S&P 500 (SPY), which is up only 1% YTD.
More importantly, the nearer-term momentum is strong and SCI has a good chance of challenging last year’s highs.
As the nation’s premiere memorial services provider, SCI deserves serious consideration.
Memorial Services Stocks to Buy: Carriage Services, Inc. (CSV)
Based in Houston, Texas, Carriage Services, Inc. (CSV) provides more localized care than SCI, operating 167 funeral homes and 32 cemeteries. However, CSV being a smaller operation has certain benefits.
From 2004, CSV ceased to be governed strictly on a budget basis, allowing the company to develop its core branding message. This shift towards superior service and value should provide CSV with an excellent counterweight against volume-centric competitors.
For Carriage Services, the focus on strategy is more than just pretty words. Since fiscal year 2012, annual revenue growth for CSV is consistently strong at a little over 7%. Better yet, net income growth over the same time period is much more impressive at 36%. This is thanks to profitability margins that are notably higher than the industry average.
One weakness to note is in the balance sheet — particularly high debt levels. However, since this is an extremely secular business, CSV should be able to manage its obligations.
If anything, Wall Street hasn’t had much to complain about. Although CSV is down 1% YTD, it did see a sharp reaction to January’s broad bearishness. But over the past 90 days, CSV is up double-digits. In addition, shares have blown through its longer-term moving averages under heavy volume. This is confirmation that investors believe in Carriage Services’ potential.
With a focus on the consumer, CSV stock would pair nicely with market leader SCI.
Memorial Services Stocks to Buy: Hillenbrand, Inc. (HI)
Saddled with an ironic ticker name, Hillenbrand, Inc. (HI) is primarily an equipment and machinery company, servicing the needs of diverse sectors such as fertilization, energy and mining. That said, HI owns the Batesville brand, which manufactures burial caskets and cremation urns. In addition, HI produces memorial items that allow families to preserve a departed member’s legacy.
The story for HI stock moving forward is how well the company can utilize its recent acquisitions. In February of this year, HI bought Red Valve Company, which manufactures specialized industrial components. It’s hoped that the Red Valve asset will complement a similar acquisition made in November of last year. The timing of these buyouts is critical considering that sales in FY 2015 dropped more than 4% against the prior year.
In recent months, Wall Street has had a very favorable outlook towards HI stock, which is up 11% since the start of February. Although HI has cleared its 50- and 200-day moving averages, the next step is lateral resistance at the $31 level. Over the past year and a half, HI stock has struggled to move past this threshold. But if Hillenbrand can generate some positive news, it could lead to a more decisive rally.
A bit on the speculative side, HI stock could surprise folks who are willing to take a risk.
Memorial Services Stocks to Buy: Matthews International Corp (MATW)
One of the oldest companies available for public trading with a founding date of 1850, Matthews International Corp. (MATW) is the most diversified company on this list. MATW specializes in bronze and granite memorials, as well as the production of caskets and urns. In addition, MATW provides marketing and packaging solutions, as well manufacturing durable goods for specific industries.
The primary challenge for MATW is to efficiently extract the most out of its broad business networks. The top line has certainly benefited, with sales from FY 2015 exceeding the prior year’s result by 29%. Net income also increased by 43%.
However, current profitability margins are well off figures achieved during the late 2000s. Also, sharply rising debt levels are a concern from a balance sheet perspective.
The good news is that MATW is in a better position than most to clean up its financials. Along with a healthy revenue stream, MATW maintains generally consistent free cash flow. By better controlling its capital expenditures, management has an opportunity to improve on this already positive trend.
Wall Street is starting to turn around on MATW, which is up 9% in the past three months.
As with Hillenbrand, MATW is a speculative stock. Nevertheless, recent momentum is an encouraging sign.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.