Stewart Enterprises, Inc.
) is a good pick for investors seeking both growth and income,
based on its solid third-quarter results, steady dividend yield and
long-term earnings growth projection of 10.0%. Furthermore, shares
of this Zacks #2 Rank (Buy) death care provider reached a 52-week
high of $8.65 on October 5, shortly after announcing an
Promising Acquisition and Strong Third Quarter
On October 2, Stewart Enterprises announced the purchase of Garden
Oaks Funeral Home in Houston, Texas for an undisclosed amount.
Contribution from the acquisition is likely to be small;
nonetheless, Garden Oaks will boost STEI's market position in
On September 5, Stewart Enterprises posted adjusted earnings per
share (EPS) of 11 cents for its fiscal third quarter, beating the
Zacks Consensus Estimate by 22.2% and last year's performance by
Revenues increased 4.0% year over year to $129.2 million. Funeral
revenue inched up 0.1% to $68.9 million and Cemetery revenue
increased 8.6% to $60.4 million.
Gross profits surged 24% to $27.0 million, marking the best hike in
profits for the company in four years. The gross profit expansion
was driven by prudent cost-control measures. Funeral gross profit
climbed 9.7% to $15.8 million and Cemetery gross profit advanced
51.4% to $11.2 million.
Its liquidity position remains sound with cash and marketable
securities of $79 million and no borrowing under the $150 million
credit facility at the end of the quarter.
Earnings Estimate Revised Higher
Over the past 60 days, the Zacks Consensus Estimate for 2012
increased 4.8% to 44 cents, implying year-over-year growth of
15.4%. For 2013, the Zacks Consensus Estimate is up 2% to 51 cents,
representing year-over-year growth of 16.7%.
Steady Dividend Payment
Stewart Enterprises has been consistently paying dividends to its
shareholders since April, 2005. The latest hike of 14% was
announced in March, 2012. Currently, the company pays a quarterly
dividend of 4 cents per share, affirming a dividend yield of 2.1%.
Valuation Appears Reasonable
On a price-to-book basis, Stewart Enterprises currently trades at
1.55x, a 19.7% discount to the peer group average of 1.93x.
However, on a forward P/E basis, shares currently trade at 17.54x,
a 25.3% premium to the peer group average of 14.00x. Based on the
company's strong growth prospective, the premium looks reasonable
and well supported by its long-term estimated EPS growth rate of
A Look at the Chart
A quick glance at the price and consensus chart reveals that the
share price remains below the fiscal 2013 and 2014 earnings
estimate lines, reflecting that the stock is still undervalued.
Currently, the stock price is up 33.7% year to date, significantly
higher than the S&P 500's return of 12.3%.
Founded in 1910 and headquartered in Jefferson, Louisiana, Stewart
Enterprises is a provider of products and services in the death
care industry in North America. The company currently owns and
operates 218 funeral homes and 141 cemeteries in the United States
and Puerto Rico. The company, which primarily competes with Service
Corp. International (
), has a market cap of $656.6 million.
Want More of Our Best Recommendations?
Zacks' Executive VP, Steve Reitmeister, knows when key trades are
about to be triggered and which of our experts has the hottest
hand. Then each week he hand-selects the most compelling trades and
serves them up to you in a new program called
STEWART ENTRP A (STEI): Free Stock Analysis
To read this article on Zacks.com click here.