Stewart Enterprises, Inc. ( STEI - Snapshot Report ) hit its 52-week high of $8.46 on September 11, 2012, shortly after reporting strong third quarter 2012 results that included an earnings surprise of 22.2%. Earnings momentum has advanced in the past week, helping this provider of funeral and cemetery services achieve a Zacks #2 Rank (Buy).

Robust Third Quarter

On September 5, Stewart Enterprises posted adjusted earnings per share of 11 cents for the third quarter of fiscal 2012, beating the Zacks Consensus Estimate of 9 cents per share. Earnings also improved by 37.5% from the year-ago level of 8 cents.

Revenues increased 4.0% year over year to $129.2 million. Funeral revenue inched up 0.1% to $68.9 million and Cemetery revenue increased 8.6% to $60.4 million.

Gross profits surged 24% to $27.0 million, reflecting the best improvement in profits for the company in four years. The gross profit expansion was driven by prudent cost-control measures. Funeral gross profit climbed 9.7% to $15.8 million and Cemetery gross profit enhanced 51.4% to $11.2 million.

The liquidity position remains sound with cash and marketable securities of $79 million and no borrowing under the $150 million credit facility at the end of the quarter.

Earnings Momentum Rising

In the past 7 days, the Zacks Consensus Estimate for fiscal 2012 rose 4.8% to 44 cents per share on the back of upward revisions in 5 out of 6 estimates. The current estimate implies a year-over-year growth of 15.4%.

For fiscal 2013, the Zacks Consensus Estimate is 51 cents per share, marking an increase of 2.0% in the same timeframe. The current estimate suggests year-over-year growth of 16.7%.

Mixed Valuation

Stewart’s valuation presents a mixed picture. On a forward P/E basis, shares are trading at 18.64x, compared with the peer group average of 13.06x. Also, the company has a price-to-sales (P/S) ratio of 1.35, an 8.0% premium to the peer group average of 1.25.

However, on a price-to-book (P/B) basis, shares trade at 1.65x, a discount to the peer group average of 1.97x. Moreover, the company’s long-term estimated earnings per share growth rate remains strong at 10.0%.

A Look at the Chart

The price and consensus chart shows that 2011 saw a trend reversal for Stewart Enterprises as earnings estimates moved higher. A similar trend has been seen for 2012 and 2013. The healthy earnings growth potential is portrayed by the gaps between the estimate lines for 2011, 2012 and 2013.

Founded in 1910 and headquartered in Jefferson, Louisiana, Stewart Enterprises is a provider of products and services in the death care industry in North America. As of July 31, 2012, the company owned and operated 217 funeral homes and 141 cemeteries in the United States and Puerto Rico. With a market capitalization of $697.6 million, Stewart primarily competes with Service Corp. International (SCI) and Carriage Services Inc. (CSV).

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