They say the only constants in life are death and taxes.
Since investing in taxes is impossible, let’s talk about putting money into an industry that makes many people uncomfortable — death. Yes, everyone dies, but that alone isn’t necessarily a passing theme of good investing. After all, you only die once. And longer life expectancy always translates into lower mortality rates combined with lower infant mortality.
But there are a few factors that make the funeral home business a good fit. An epidemic caused the premature death of more than 1 million Americans and another 50,000 Canadians. That’s a lot of modesty. Drug use has led to an explosion of premature deaths among young people. And after decades of life expectancy at record highs, the trend is beginning to reverse in Canada and the United States.
Another reason to be excited about burial service stocks is that we only die once. No one wants to accuse Grandma of cheapening her funeral. This ensures a funeral’s pricing power and grieving relatives are more likely to say yes to a higher number of additional add-ons.
As our population grows, so does the need for vacation spots. Yes, many people prefer to be cremated, but they still want to see relatives somewhere. So they opt for a hybrid option and store the cremated remains in vaults in the cemetery. This, combined with strong demand for casket burials, also bodes well for the cemetery business.
Besides, what better way to stave off your own inevitable passing? A small investment in a good funeral home stock can earn you enough money to pay for a pretty comfortable ride to the afterlife. It’s a great way to stick with a man.
Let’s take a look at four of the best end home stocks in North America. There are some strong ones Canadian stocks In the industry, but we’d like to see some south of the border as well.
What are the best end-of-life housing stocks to buy now?
- Matthews International Corporation (NASDAQ:MATW)
- Services Corporation International (NYSE:SCI)
- Carriage Services Inc (NYSE:CSV)
- Park Lawn Corporation (TSE:PLC)
Matthews International Corporation (NASDAQ:MATW)
Let’s begin Matthews International Corp (NASDAQ:MATW), which provides brand solutions, industrial technologies and, specifically for this segment, memorial products to the funeral industry.
Bronze and granite memorials, benches, crypt plaques and letters, burial caskets, cremations and urns will be offered. Almost 50% of the company’s sales are in the memory space.
Although it is a global player, 70% of its sales are in the US and Canada.
If we focus on the memorabilia part of the business, Mathews is well positioned. It has a leading market share in both bronze and granite memorials and cremation tools. It is the second largest manufacturer of caskets. It maintains this advantage through relationships with funeral directors, its broad product selection and long history of being a market leader. Why deal with new suppliers when you can get everything you need from one place?
Mathews explains the growth of funeral rates in a way that is more useful to investors than investing in a funeral home. Cremation costs are much lower than traditional burials, which translates into lower cremation profits. But since Matthews International deals with both, the company is poised to make a profit regardless of the industry’s direction. It’s a great place.
Services Corporation International (NYSE:SCI)
Service company (NYSE:SCI) owns and operates funeral homes and cemeteries in both the United States, Puerto Rico and Canada. The company has more than 1,900 locations in these three regions, including 44 states and eight Canadian provinces.
The company has a long history of acquisitions as it tries to consolidate the incredibly fragmented funeral services industry. Service corporations control approximately 15% of the funeral home market, but 80% of funeral homes are owned by independent operators.
Its most significant acquisition to date was when it acquired Stewart Enterprises in 2013. However, the service is making smaller contracts.
After a good improvement in revenue and earnings thanks to the Covid mortality rate, growth in services projects will be steady over the next few years, with investors expecting an annual increase of 8-12% in earnings. Key growth drivers include organic growth, price increases, acquisitions, other capital projects and share repurchases, which help increase earnings per share. The service has continued to buy back shares for several years, with shares outstanding falling 54% since 2004.
Stocks have been a fantastic place to park capital over the past decade. Including reinvested dividends, the stock has grown 19.15% annually from 2013 to 2022, enough to make a $10,000 original investment worth $57,641. There’s no guarantee that the stock will return a similar amount over the next 10 years, but that kind of track record is usually a good sign.
Carriage Services Inc (NYSE:CSV)
Cab services (NYSE:CSV) is another provider of funeral and cemetery services in the United States, operating 173 funeral homes in 26 states and 32 cemeteries in 11 states. Approximately 70% of the revenue comes from funerals and 30% of the business comes from cemeteries.
Like a service corporation, Garage Services is a growth-through-acquisition play. It also looks to consolidate existing family-owned funeral homes.
But much smaller than the garage service, it generates roughly one-tenth the revenue of its larger competitor. That means the cart can more easily make acquisitions that move the needle. Even a few new funeral homes can affect the results. That amount will be a rounding error for the acquisition service.
This small size indicates that fewer investors are paying attention, which would be ideal for someone trying to buy the stock today. The stock is trading at a significant discount on almost every metric at the time of writing, when compared to price-to-earnings, price-to-free cash flow and EBITDA. Value investors, take note.
Finally, Garage has an amazing strategy with its preneed segment, where customers pay for funerals in advance. That capital is then invested, like a float in the insurance business. Results since 2009 have been excellent, with returns of 12.8% per annum. That’s better than a comparable investment in the S&P 500.
Park Lawn Corporation (TSE:PLC)
While Canadian investors can easily buy shares on American exchanges, it’s nice to have more local exposure for the funeral home business. Park Lawn Corporation (TSX:PLC) offers Canadian investors an easy way to put their capital into this industry.
The park lawn has grown like a weed over the past few years. The acquisitions include 38 funeral homes and cemeteries in 2019, 34 in 2020, 41 in 2021, and 33 in 2022. The company today has more than 300 funeral homes and cemeteries.
Like Garage Services, Park Lawn is a combination small enough for individual transactions, but big enough for investors to take notice. This bodes well for future growth.
A few factors should help Park Lawn achieve its ambitious 2026 growth targets, which project to double the company’s 2021 revenue and increase adjusted earnings per share. Population aging in North America should play a significant role. Organic growth from existing assets will also help. But most of the heavy lifting will come from acquisitions. The good news is, as we’ve already established, there are plenty of assets to be had.
Investors should keep an eye on Park Lawn’s new share issue. Like many younger companies with small balance sheets and significant capital needs, the company is occasionally forced to issue stock to pay for acquisitions. Stocks usually fall temporarily when this happens, and in the past this has been a good buying opportunity.