Service Corporation Up 13% in 6 Months: Can Momentum Sustain?

Service Corporation InternationalSCI has seen its shares gain 12.6% in the past six months, against the industry 's dip of 3.2%. The funeral services company has been gaining from its strong funeral service revenues and growth initiatives. However, stiff competition and rising inclination toward cremations are concerns for Service Corporation.

Let's delve deeper and see if the company's initiatives can help it counter the hurdles and sustain the momentum.

What's Behind Service Corporation's Growth Story?

Service Corporation's comparable funeral service revenues have been growing year over year for four straight quarters, with an increase in comparable funeral preneed sales production. In the third quarter of 2018, comparable funeral sales rose 1.9% on the back of higher general agency revenues and increased recognized preneed revenues. The latter was a result of greater contracts sold through the company's non-funeral home sales network. Further, comparable preneed funeral sales production grew 13.6%, driven by strength in core and non-funeral home channels. This, in turn, was fueled by the newly introduced consumer-facing technology along with digital marketing campaigns, website remodeling and optimization of search engine.

Well, Service Corporation has been gaining from its strategic growth efforts, which are mainly aimed at enhancing revenues, utilizing scale and deploying capital, efficiently. The company focuses on catering to the changing consumer needs and utilizing its robust scale to drive preneed sales at both its segments. In fact, Service Corporation is also making technological advancements to better present its products and services to consumers. These factors along with the demographic landscape remain tailwinds to the company's revenues.

Further, the company is committed toward pursuing strategic buyouts for both its segments and building new funeral homes to generate greater returns. Also, buyouts in the cemetery segment are aimed at exploiting increased opportunities to cater to Baby Boomers. Service Corporation has a solid record of making and integrating prudent businesses. Some notable acquisitions made by the company include Alderwoods Group, Keystone North America, The Neptune Society and Stewart Enterprises.

Will Hurdles be Offset?

Service Corporation has been witnessing a continued rising trend in the number of cremations, as another option to the traditional funeral service. Well, the company's average revenues from cremations with service are usually lower compared to that for traditional burials. Markedly, the proportion of cremation cases in Service Corporation's comparable services has risen from 51.7% in 2015 to 52.6% and 53.5% in 2016 and 2017, respectively. Persistence of such trends is a threat to the company's overall performance.

Moreover, the company has faced pricing pressure in the past from independent funeral service location and cemetery operators, monument dealers, casket retailers, low-cost funeral providers and more. Also, use of alternative channels, such as e-commerce, to buy funeral related products has increased competition.

Nevertheless, the Zacks Rank #3 (Hold) company's growth drivers are likely to help it fight the odds and keep the growth story going. Clearly, Service Corporation is well positioned to continue gaining from the aging Baby Boomer population, which is fueling the company's preneed cemetery sales programs and is expected to boost its preneed and atneed funeral results.

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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.

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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