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Will Service Corporation's Strategies Help Maintain Momentum?

Zacks Equity Research

Service Corporation International SCI is gaining from its endeavors and demographic trends. These endeavors are enabling the company to stay in investors’ good books, despite hurdles like elevated costs.

Markedly, this Zacks Rank #3 (Hold) stock has rallied 14.7% so far this year, easily outpacing the industry’s growth of 4%. Let’s take a closer look.



Factors Shaping Service Corporation’s Trajectory

Service Corporation’s growth efforts are mainly aimed at utilizing scale and efficiently deploying capital.

The company focuses on catering to changing consumer needs and utilizing its robust scale to drive preneed sales. In fact, its second-quarter 2019 comparable cemetery revenues rose 0.7% year over year, mainly driven by growth in recognized preneed sales.

Further, Service Corporation is making technological advancements to better present its products and services to consumers. These factors along with the favorable demographic landscape are tailwinds to the company’s revenues. Moreover, Service Corporation is well positioned to continue gaining from the aging Baby Boomer population, which is fueling its preneed cemetery sales programs and expected to boost its preneed and at need funeral results.

Apart from these factors, the company is committed to pursuing buyouts for both its segments and building new funeral homes to generate greater returns. Some notable acquisitions made by the company in the past include Alderwoods Group, Keystone North America, The Neptune Society and Stewart Enterprises. Also, buyouts in the cemetery segment are aimed at exploiting opportunities to cater to Baby Boomers.

We note that buyouts are an integral part of the company’s capital investment ventures targeting growth. It deployed $14 million during the second quarter toward acquisitions of real estate. It invested an additional $10 million in building and expansion of funeral homes.

Will Hurdles be Countered?

Service Corporation has been witnessing escalated interest expenses for more than a year. In the second quarter of 2019, interest expenses rose $2.8 million to $47.3 million due to higher interest rates on its floating rate debt.
 
Though the persistence of high interest costs is a threat, we expect the company’s growth-driving efforts to offset these hurdles and keep its solid show on.

Don’t Miss These Consumer Staple Stocks

TreeHouse Foods THS, with a Zacks Rank #2 (Buy), has a long-term earnings per share growth rate of 13.8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

J&J Snack Foods JJSF, with a Zacks Rank #2, has an impressive earnings surprise record.

McCormick & Company MKC, with a Zacks Rank #2, has a long-term earnings per share growth rate of 8%.

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