Thursday, September 12, 2013

Service Corporation International: A Deathcare Stock Poised For Significant Growth

The following is a "small cap insight" column by Sarfaraz A. Khan about a company with a market cap of less than $5 billion. 

Services Corporation International (NYSE:SCI), also called SCI, is the market leader in North America's funeral and cemetery industry. The Houston based company operates through a network of 1,435 funeral homes and 374 cemeteries spread across 43 states, 8 provinces of Canada and District of Columbia. The company is now eyeing another large acquisition which will significantly increase its revenues. Moreover, its stock has delivered a stellar performance this year and has easily outperformed the broader market. Its shares are still not expensive, and there is ample room for growth. The company reported an earnings drop in its previous quarterly results, but that was mostly a short term hiccup and its long term prospects are bright.

Quarterly Results
In its previous quarter, SCI reported a 4.7% increase in revenues to $625.5 million, but its net income dropped 9.43% to $33.6 million. SCI's adjusted earnings increased 5.6% to $0.19 per share, missing market's expectations by just $0.01. On the other hand, revenues were $14.69 million more than the consensus estimate.

Over the last five years, the company's revenues and income have grown at a modest pace. This period did not witness any major acquisition (like the 2006 purchase of Alderwoods Group discussed later), although the company did make some relatively smaller investments. However, the company is now gearing up to make its biggest purchase by acquiring Stewart Enterprises (NASDAQ:STEI) for $1.4 billion. Excluding cash and debt, Stewart is valued at $1.2 billion. The acquisition will likely close by the end of this year or early next year ….. Read More