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Service Corporation (SCI) Stock Appears Promising: Here's Why

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Service Corporation International (SCI - Free Report) appears to be in great shape, with strong growth potential. The company has been benefiting from its robust Funeral segment sales for a while now. Higher Funeral revenues also aided first-quarter 2022 results, with the top and the bottom line increasing year over year and beating the Zacks Consensus Estimate. Management raised its 2022 bottom-line view on escalated funeral services performed and increased preneed cemetery sales in the first quarter.  The company’s focus on expansion is also noteworthy.

The consensus mark for 2022 has gone up from $3.00 to $3.52 per share in the past 30 days. Shares of this Zacks Rank #1 (Strong Buy) company have rallied 13.3% in the past three months compared with the industry’s rise of 6%. Let’s delve deeper into the upsides surrounding this provider of deathcare products and services.

Factors Working Well for Service Corporation

Revenues in Service Corporation’s Funeral segment have been increasing for quite some time now. In the first quarter of 2022, consolidated Funeral revenues rose to $649.1 million from the $619.4 million reported in the year-ago quarter, indicating a 4.8% rise. Total comparable funeral revenues grew 2.9%, led by growth in core funeral revenues as well as recognized preneed revenues. Growth in core funeral revenues (of 1.7%) was driven by an increase in the core average revenue per service. Comparable preneed funeral sales production increased by 16.7%.

The upside can be attributed to a rise in velocity and sales averages as SCI continues to gain on elevated leads. Management stated that the percentage of families opting to have funerals has reverted to pre-pandemic levels. Also, the funeral sales average is being boosted by a rise in other revenues, including flowers and catering. The continuation of such trends bodes well for the segment.

The company remains committed to pursuing strategic buyouts for both its segments and building new funeral homes to generate greater returns. During the three months ended Mar 31, 2022, the company incurred capital expenditures of $56.7 million, which included higher investments in technology and associated infrastructure projects at the company’s cemetery and funeral locations. Service Corporation also made an investment in cemetery property development. Management expects capital improvements at existing locations and cemetery development expenditures in the band of $270-$290 million in 2022.

A Look at Q1 & Ahead

In the first quarter of 2022, the company continued to witness the escalated levels of funeral services, burials and preneed sales, with increased consumer spending. The company saw a double-digit percentage increase in preneed funeral and cemetery sales production. Service Corporation posted adjusted earnings of $1.34 per share, surpassing the Zacks Consensus Estimate of 99 cents. The metric increased by 2 cents from the $1.32 reported in the year-ago quarter. The upside can be attributed to the increased gross profit (from recent buyouts and new builds) as well as reduced shares outstanding. Both the funeral and cemetery units delivered robust performances. Total revenues of $1,112.4 million increased by 3.2% year over year. The upside can be attributed to increased funeral and cemetery revenues. The top line came ahead of the Zacks Consensus Estimate of $1,023 million.

Management raised its bottom-line and adjusted cash flow guidance for 2022, which reflects robust first-quarter earnings, mainly related to escalated funeral services performed as well as increased preneed cemetery sales. Apart from this, management increased its estimates for preneed cemetery sales production and cemetery revenues for the remainder of 2022.

Service Corporation expects the midpoint of the adjusted earnings per share (EPS) to come in at $3.50 compared with the earnings of $3.00 projected earlier. The company envisions the adjusted EPS in the range of $3.00-$3.70 in 2022 compared with the earlier view of the $2.80-$3.20 band. We note that SCI’s earnings came in at $4.57 per share in 2021. Net cash provided by operating activities (excluding special items) in 2022 is anticipated in the range of $750-$800 million now, up from the $675-725 million range expected earlier.

All said, Service Corporation is likely to continue with its impressive growth story.

Other Consumer Staple Bets Worth Noting

Some other top-ranked stocks are Sysco Corporation (SYY - Free Report) , Carriage Services, Inc. (CSV - Free Report) and Medifast (MED - Free Report) .

Sysco, which engages in the marketing and distribution of various food and related products, sports a Zacks Rank #1 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Sysco’s current financial-year sales and EPS suggests growth of 32% and 122.9%, respectively, from the year-ago reported number. SYY has a trailing four-quarter earnings surprise of 9.1%, on average.

Carriage Services, the provider of funeral and cemetery services and merchandise, currently carries a Zacks Rank #2 (Buy).

The Zacks Consensus Estimate for Carriage Services’ current financial-year sales and EPS suggests growth of 2.9% and 19.2%, respectively, from the year-ago reported figure. CSV has a trailing four-quarter earnings surprise of around 17.4%, on average.

Medifast, which manufactures and distributes weight loss, weight management, healthy living products, and other consumable health and nutritional products, currently carries a Zacks Rank #2.

The Zacks Consensus Estimate for Medifast’s current financial-year sales and EPS suggests growth of nearly 19% and 11.5%, respectively, from the year-ago reported figure. MED has a trailing four-quarter earnings surprise of 12.9%, on average.