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There are no guarantees when it comes to investing, but there are two guarantees in life, death and taxes. That ponders the question, “What happens when you invest in something guaranteed in life?”. In this note, we will specifically look at the death industry and some of the best death stocks you might want to consider adding to your portfolio.
Death Industry
As one might expect, one of the key industry drivers for the death industry is how much people die. As shown below, the number of deaths worldwide is only expected to increase year over year. This isn’t too big of a shock as with a growing worldwide population, there will be more people who die.
A large majority of these deaths are driven by an aging population. As seen below, over the next few decades, many more North Americans are expected to transfer into the 75+ age range putting them more at risk of dying.
Largest Death Industry Companies
3 of the largest companies in the death industry are Service Corporation International ($SCI), Park Lawn Corporation ($PLC) and Carriage Services, Inc. ($CSV).
While Service Corporation International is by far the largest of the 3, that doesn’t paint the full picture of the funeral home industry. Most funeral homes operate as independents leaving plenty of potential room for growth in the industry through acquisitions.
As an example, here are Park Lawn’s acquisitions over the past 4 years. In total, they had 25 acquisitions since 2018 which is very uncommon in other industries.
Service Corporation International by far has the most cash on their balance sheet putting them in the best position for future acquisitions.
Revenue Breakdown
The breakdown of revenue in the funeral home industry can be separated into two main categories, service and sales. Service includes all the non-tangible offerings that come with a funeral such as renting the space, shuttling people to the cemetery and organizing the event while sales make up the tangible items associated with a funeral such as caskets, flowers etc.
While both Service Corporation International and Carriage Services both have a relatively equal breakdown between sales and service revenue with service being weighed slightly higher, Park Lawn is almost 100% weighted towards the service side of the business.
Park Lawn’s weighting towards the service side of revenue is no coincidence. When looking at their gross margins between the 3, Park Lawn Consistently generates a 75% margin while the other two are both around only 25%.
Profitability
All 3 companies are quite consistent with their earnings and have seen a consistent uptick in earnings over the past 3 years.
Valuation and Key Ratios
When looking at PE ratios, $SCI is less than half of both $PLC and $CSV.
$SCI has over a 40% ROE based on putting them way ahead of the other two. The large ROE is caused by 2 main factors, SCI’s higher net income and their capital structure which uses way more debt than equity to fund their business.
SCI uses 4 times as much debt as they do equity leading them to have lower equity and making their ROE higher.
Return on assets also shows a similar picture to ROE with SCI leading the pack followed by CSV and PLC.
Which is Best?
When comparing all 3 companies, Service Corporation International ($SCI) comes out on top in just about every metric. They have 5 times the market share of their competitors and the largest cash position of the 3 which should allow them to continue to grow and acquire in the future. $SCI has the greatest revenue and earnings while also maintaining the lower PE ratio meaning that people haven’t overvalued their earnings. Even their capital structure puts them at advantages compared to their competitors since the greater use of debt will provide a tax shield on their earnings and while usually, debt comes with greater risk of bankruptcy, in a stable industry like funeral homes, there is little risk of that happening.
While all 3 companies seem decently poised to do well over the next few years, $SCI seems like the better choice between the 3. If you disagree, let us know why in the comments.
Almost all graphs came from the https://invrs.com/home platform, so check it out if you like what you saw.
Sources: INVRS, Park Lawn Corporation, Carriage Services Inc., Service Corporation International, Statista, Funeral Director Daily, United Nations
This is not financial advice. Everything in this note is purely for educational and entertainment purposes.
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