The Best Funeral Home Stocks to Buy in September 2023 – Loans for Stock in Canada

On September 26, 2023

They say the only constant in life is death and taxes.

Since it’s impossible to invest in taxes, let’s talk about putting cash to work in an industry that makes many people uncomfortable — death. Yes, everybody dies, but that alone doesn’t necessarily make passing a good investment theme. You only die once, after all. And longer life spans combined with ever-lower infant mortality translate into lower death rates. 

But a few factors combine to be bullish for the funeral home industry. A pandemic caused the untimely death of more than 1 million Americans and an additional 50,000 Canadians. That alone is a lot of burials. Drug use has led to an explosion of premature deaths in young people. And after a decades-long streak of life expectancy marching ever higher, the trend has begun to reverse in Canada and the United States.

Another reason to be bullish about burial service stocks is that we only die once. Nobody wants to be accused of cheaping out on Grandma’s funeral. This ensures a funeral home’s pricing power and means grieving relatives are likely to say yes to high-margin add-ons.

As our population grows, so does the need for resting places. Yes, many folks opt to be cremated, but they still want somewhere relatives can visit. So they’re choosing a hybrid option and storing cremated remains in vaults at the cemetery. This, combined with still strong demand for casket burials, also bodes well for the cemetery business.

Besides, what better way to hedge your own inevitable passing? A small investment in a top funeral home stock could make you enough money to pay for a pretty comfortable trip into the afterlife. It’s an excellent way to stick it to the man.

With the Toronto Stock Exchange being heavily cyclical and exposed to industries such as steel, financials, oil and gas, and gold, there are not many Canadian stocks in the funeral sector. So, we’ll expand this list to North America.

What are the top funeral home stocks to buy right now?

Matthews International Corporation (NASDAQ:MATW)
Service Corporation International (NYSE:SCI)
Carriage Services Inc (NYSE:CSV)
Park Lawn Corporation (TSE:PLC)

Matthews International Corporation (NASDAQ:MATW)

Let’s start with Matthews International Corp (NASDAQ:MATW), which provides brand solutions, industrial technologies, and, most notably for this piece, memorialization products for the funeral industry.

Some of the merchandise offered include bronze and granite memorials, benches, crypt plates and letters, burial caskets, crematories, and cremation urns. Nearly 50% of the company’s sales are in the memorialization space.

Although it is a worldwide player, 70% of sales are in the United States and Canada.

If we focus on the memorialization part of the business, Matthews is well positioned. It has a leading market share in both bronze and granite memorials, as well as cremation equipment. It’s the second-largest provider of caskets, too. It maintains this advantage through relationships with funeral home operators, its broad product selection, and its long history of being a market leader. Why deal with new suppliers when you can get everything you need from one place?

Matthews also gives investors exposure to growth in the cremation rate in a much more effective way than investing in a funeral home operator. Cremation costs are much lower than traditional burials, which translates into lower cremation profits. But since Matthews International deals in both, the company is poised to profit regardless of the industry’s direction. That’s an excellent place to be.

Service Corporation International (NYSE:SCI)

Service Corporation (NYSE:SCI) owns and operates both funeral homes and cemeteries in the United States, Puerto Rico, and Canada. The company has more than 1,900 locations across these three areas, including 44 states and eight Canadian provinces. 

The company has a long history of acquisitions as it attempts to consolidate an incredibly fragmented funeral services industry. Service Corporation controls approximately 15% of the funeral home market, but 80% of funeral companies are owned by independent operators.

Its most significant acquisition to date was when it acquired Stewart Enterprises in 2013. Still, Service has been making smaller deals since then as well.

After a nice bump in revenues and earnings thanks to the COVID death rate, Service projects growth to be steady over the next few years, telling investors to expect 8-12% annual increases in earnings. Key growth drivers include organic growth, pushing through price increases, acquisitions, other capital projects, and share repurchases, helping to increase earnings per share. Service has consistently repurchased shares for years, decreasing outstanding shares by 54% since 2004.

Shares have been a terrific place to park capital over the last decade. Including reinvested dividends, the stock increased 19.15% annually from 2013 to 2022, enough to turn a $10,000 original investment into something worth $57,641. There are no guarantees that the stock will return a similar amount in the next 10 years, but that kind of track record is usually a good sign.

Carriage Services Inc (NYSE:CSV)

Carriage Services (NYSE:CSV) is another provider of funeral and cemetery services in the United States, operating 173 funeral homes spanning 26 states and 32 cemeteries across 11 states. Approximately 70% of revenue comes from funeral home operations, with 30% of business from cemeteries.

Like Service Corporation, Carriage Services is a growth-by-acquisitions play. It’s also looking to consolidate existing family-owned funeral homes. 

But Carriage is much smaller than Service, generating approximately one-tenth the revenue as its larger competitor. That means Carriage can more easily make acquisitions that will move the needle. Even a handful of new funeral homes will impact results. An acquisition that size would be a rounding error for Service.

This small size also means fewer investors are paying attention, which could be suitable for someone trying to buy the stock today. Shares trade at a significant discount on virtually every metric at the time of writing when compared to its peers, including price-to-earnings, price-to-free cash flow, and price-to-EBITDA. Value investors, take note.

Finally, Carriage has an exciting strategy with its preneed division, where customers prepay for funeral services. That capital is then invested, much like a float in the insurance business. Results since 2009 have been excellent, returning 12.8% per year. That’s better than a comparable investment in the S&P 500.

Park Lawn Corporation (TSE:PLC)

Although Canadian investors can easily purchase stocks on American exchanges, it’s nice to have more local exposure to the funeral home business. Park Lawn Corporation (TSX:PLC) gives Canadian investors an easy way to put their capital to work in this industry.

Park Lawn has grown like a weed over the last few years. Acquisitions include 38 funeral homes and cemeteries in 2019, 34 in 2020, 41 in 2021, and 33 in 2022. The company has more than 300 funeral homes and cemeteries today. 

Like Carriage Services, Park Lawn is the perfect combination of small enough for individual transactions to move the bottom line but big enough for investors to notice. That bodes well for future growth.

A few factors should help Park Lawn reach its 2026 aspirational growth targets, which project the company to more than double its 2021 revenue and adjusted earnings per share. Demographics should play a significant role as North America’s population ages. Organic growth from existing assets will help as well. But the majority of the heavy lifting would come from acquisitions. The good news is, as we’ve already established, there are plenty of assets to acquire. 

Investors will need to keep an eye on Park Lawn’s new share issuance. Like many younger companies with small balance sheets and significant capital needs, the company is periodically forced to issue shares to help pay for acquisitions. Shares usually fall temporarily when this happens, and it has been a good buying opportunity in the past.


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Original Source: Stocktrades

Categories: Top Canadian Stocks

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