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Near-Term Worries Make Funeral Services Industry Outlook Morbid

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The Zacks Funeral Services industry comprises companies that provide deathcare products and services in the United States. While some of these firms sell cemetery property, some also provide related products and merchandise such as caskets, burial vaults, garments, cemetery interment rights, and stone and bronze memorials among other items. Further, these companies possess funeral service locations, cemeteries, funeral service/cemetery combination locations and crematoria.

Let’s take a look at the industry’s three major themes:

  • The inevitability of death has always kept demand for the industry’s services alive. Despite being unpleasant by nature, the funeral services business is positioned to benefit from high mortality rates and the aging baby boomer population. To this end, the entire funeral process that involves embalming, as well as use of caskets, vehicles, funeral staff and equipment among others acts as a significant revenue source for industry participants.
  • Rising inclination toward cremations over traditional burials have hit the players in the funeral services space to an extent. Cremation costs significantly less than traditional funeral, with the average cremation service cost being roughly $2,500. Thus, increased demand for cremation remains a pressure on revenue per client of the funeral services industry.
  • Availability of funeral-related products on the e-commerce platform and use of environment-friendly alternatives for burials are quite a threat to industry participants. Evidently, consumers are choosing shrouds and woodland burials over coffins and graveyards, while tech advancement is increasing the popularity of video tributes. Additionally, demand for the industry’s services is dependent on seasonal factors, and is usually higher in winters given the high cases of influenza and pneumonia.

Zacks Industry Rank Indicates Murky Prospects

The Zacks Funeral Services industry is housed within the broader Zacks Consumer Staples sector. The industry currently carries a Zacks Industry Rank #223, which places it in the bottom 13% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates drab near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of an unimpressive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually becoming less confident about this group’s earnings growth potential. Since the end of January, the industry’s consensus earnings estimate for the current year has declined close to 3%.

Industry Lags on Stock Market Performance

The Zacks Funeral Services industry has lagged the Zacks S&P 500 composite as well as the broader Zacks Consumer Staples sector over the past year.

The industry has gained 0.7% over this period compared with the S&P 500’s gain of 9.6%. Meanwhile, the broader sector has risen 5.2%.

One-Year Price Performance

Industry’s Current Valuation

On the basis of forward 12-month Price-to-earnings (P/E) ratio, which is commonly used for valuing consumer staples stocks, the industry is currently trading at 15.59X compared with the S&P 500’s 17.27X and the sector’s 19.02X.

Over the past five years, the industry has traded as high as 25.43X, as low as 17.85X, and at the median of 21.62X, as the chart below shows.

Price-to-Earnings Ratio (Past 5 Years)

Bottom Line

The funeral services industry remains shielded by steady demand for funeral services. Also, the aging baby boomer population presents solid opportunities to players in this industry. However, consumers’ rising preference for cremation services as well as competition from e-commerce sales channels keeps funeral services companies under pressure.

There are no stocks in the Funeral Services space currently with a Zacks Rank #1 (Strong Buy) or 2 (Buy). However, we are presenting a couple of stocks with a Zacks Rank #3 (Hold) that are well positioned to capitalize on the opportunities and another stock with a Zacks Rank #4 (Sell) that appears to be struggling. You can see the complete list of today’s Zacks #1 Rank stocks here.

Service Corporation International (SCI - Free Report) : For this deathcare services provider, the Zacks Consensus Estimate for the current year earnings has increased over the past 30 days. This Zacks Rank #3 stock has gained 15.4% in the past year. The company has an estimated long-term earnings growth rate of 11.2%.

Price and Consensus: SCI

Carriage Services, Inc. (CSV - Free Report) : The Zacks Consensus Estimate for this Zacks Rank #3 company has remained stable in the last 30 days. The consumer products player has an estimated long-term earnings growth rate of 15%. Markedly, Carriage Services has seen its shares rally close to 13% in the past six months.

Price and Consensus: CSV

Matthews International Corporation (MATW - Free Report) : The Zacks Consensus Estimate for this Zacks Rank #4 company has dropped 2.2% in the last 30 days. Further, Matthews International has seen its shares plunge about 29% in the past year.

Price and Consensus: MATW

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