Service Corporation (SCI) Seems to be in a Good Spot: Here's Why

Service Corporation International SCI is in a good shape, benefiting from increased operations amid the pandemic-led higher mortality. The Zacks Rank #2 (Buy) company’s shares have gained 6% in the past three months against the industry’s decline of 0.2%. Additionally, this deathcare products and services provider currently has a long-term earnings growth rate of 11.4% and a VGM Score of B.

Service Corporation has been gaining on increased funeral services performed and greater burials in its cemeteries, especially amid the pandemic. Additionally, the company’s focus on making property developments has been working well. Increased funerals and burials, together with a robust cost structure, fueled the company’s first-quarter 2021 results, wherein management upped 2021 earnings guidance. Importantly, the Zacks Consensus Estimate for 2021 earnings has risen from $2.69 per share to $2.89 over the past 60 days. Let’s delve deeper.

Service Corporation International Price, Consensus and EPS Surprise

Service Corporation International Price, Consensus and EPS Surprise

Service Corporation International price-consensus-eps-surprise-chart | Service Corporation International Quote

What’s Working Well for Service Corporation?

In first-quarter 2021, both earnings and revenues improved year over year and surpassed the Zacks Consensus Estimate. Incidentally, both Funeral and Cemetery segments benefited from higher core revenues. The bottom line was backed by elevated gross profit, resulting from increased funeral services and burials performed along with a robust increase in cemetery recognized preneed revenues. Further, the bottom line gained from reduced shares outstanding and a decline in interest expenses.

Revenues in the company’s Cemetery segment have been increasing for the past few quarters. During the first quarter of 2021, segment revenues rose 53.8% to $458.5 million, thanks to increased core revenues. Core revenues gained from an increase in both atneed and total recognized preneed revenues. Comparable Cemetery revenues improved 53.9% year over year on the back of higher core revenues. This, in turn, was fueled by elevated recognized preneed revenues owing to solid comparable preneed cemetery property sales production. Moreover, growth in atneed revenues, which stemmed from a rise in burials performed, was an upside.
 

Zacks Investment ResearchImage Source: Zacks Investment Research

Comparable preneed cemetery sales production rose 67.1% owing to growth in large sales, sales averages and sales velocity. The company continued to gain from an efficient sales force, prudent utilization of customer relationship management systems, and improved conversion rates from direct mail and digital lead campaigns. Further, Service Corporation continued to witness elevated conversion and close rates, thanks to customers’ greater awareness of the possible effects of coronavirus. It also saw an increase in location traffic as a result of greater funeral services and burials performed. Solid revenues, together with an improved cost structure, also fueled segment gross profit and margin.

Apart from these, Service Corporation remains committed to pursuing strategic buyouts for both segments and building new funeral homes to generate greater returns. In the first quarter, the company incurred capital expenditures of $42.3 million. It undertook several cemetery development and construction projects in the quarter. These investments are touted to be accretive to the company in the near term. Expenditures associated with capital enhancements at current locations and cemetery development are anticipated in a band of $235-$255 million in 2021.

Raised Guidance

A sturdy first-quarter show encouraged management to raise its bottom-line projection for 2021. It now envisions adjusted earnings per share in the range of $2.70-$3.00 compared with $2.50-$2.90 projected earlier. The company’s guidance for the year is wider than usual due to the uncertainty surrounding the COVID-19 impact. We note that the company’s earnings came in at $2.91 per share in 2020. Additionally, management informed that the company is on track with its long-term earnings growth framework. Accordingly, it will maintain focus on its core strategies that include growing revenues by remaining relevant to client families, leveraging scale and maximizing capital deployment opportunities.

Other Solid Staple Bets

Darling Ingredients DAR, which currently carries a Zacks Rank #1 (Strong Buy), has a trailing four-quarter earnings surprise of 29.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

Medifast MED has a Zacks Rank #1 and its bottom line outpaced the Zacks Consensus Estimate by 12.7% in the trailing four quarters, on average.

Nomad Foods NOMD has a Zacks Rank #2 and its bottom line outpaced the Zacks Consensus Estimate by 10.3% in the trailing four quarters, on average.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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