Dark Clouds for the Death-Care Industry
Longer life expectancies, unfavorable secular trends toward cremations, and intense price competition are hampering longer-term growth and profitability.
Although much has been written about two uncertainties in life, none is more famous than a letter written by Benjamin Franklin to Jean-Baptiste Leroy in 1789, in which Franklin stated, "In this world nothing can be said to be certain, except death and taxes". While death can be considered one of the two certainties in life, several unfavorable secular trends are hampering longer-term growth and profitability in the death-care industry.
Firms in the death-care industry have several qualities that, on the surface, make for solid investments. Firms like Service Corporation International (SCI) and Stewart Enterprises (STEI) generate robust positive free cash flow. The industry's largest player, Service Corporation consistently generates roughly $250 million in equity free cash flow on average, equating to a free cash flow yield of 9%. Stewart generates roughly $55 million of equity free cash on average, with a three-year average yield of almost 8%. Additionally, these firms have a track record of repuchasing their own shares, and issuing albeit modest dividends.
Bradley Meeks does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.