The funeral/death care sector is a very niche sector for investors as there are very few listed companies in the space. However, when looked at closely, the death care industry is a great non-cyclical play. The death care industry is about $1.6 billion in Canada and $20B+ in the US. The sector is poised to benefit from the tailwind of an ageing population in North America despite cremation rates growing every year. Cremation is a lower margin service than traditional burial funerals. In 2020, the cremation rate in Canada stood at 74% and 56% in the US.
While cremation rates increasing is bad news for the sector, the sector has high barriers to entry, and huge demographic tailwinds are a plus. In addition, the sector is very fragmented, with a few large private players; small/family businesses and churches own 80%-90 % of it. Surprisingly, the pandemic was not as good for the sector as one might expect due to increasing cremation rates and people staying away from elaborate funeral ceremonies due to its expense and social distancing. However, the sector looks strong in the long term due to an increasingly ageing population and a rising number of deaths. On average, deaths in the US and Canada are growing at 1% a year.
5 Best Funeral Stocks to Invest In Canada
Park Lawn (TSE: PLC)
Park Lawn is the largest public death care company in Canada. The company is the third-largest company in the death care sector in Canada, behind Service Corporation and Arbor Memorial. The company operates a portfolio of death care properties, including 95 funeral homes, and 38 crematoria, and 103 cemeteries across Canada and the US.
The company has been a great growth story, with earnings per share growing at 13% annually over the last 5 years. In addition, the company has exposure to both cremation and funerals, making it a safe bet due to growing cremation rates.
In Q1 FY21, the company reported $89.5 million, up 26% YoY, with a quarter EBITDA of $24.2 million, up 42% YoY, and a net profit of $9.75 million. In addition, the company pays a monthly dividend of $0.038 per share, representing a dividend yield of 1.35%.
Service Corporation International (NYSE: SCI)
Service Corporation is the largest player in the death care space by market share in North America. The company has a presence in the US, Canada, and Puerto Rico. The company has 1500 funeral homes and 400 cemeteries across eight Canadian provinces, 43 US states, and Puerto Rico. In FY20, the company reported a 78% growth in earnings, far eclipsing its 5 year EPS growth rate of 15.1%. Like Park Lawn, it has both traditional burial funerals and cremation verticals.
In Q1 FY21, the company reported $1.078 billion (up 34.2% YoY), EBITDA of $342 million (up 126% YoY) and net profit of $228 million (up 180% YoY). The company reported funeral sales growth of 16% and cemetery sales growth of 67%. Funeral gross margins grew 10% to 31% and cemetery grew 15.4% to 40%.
Carriage Services (NYSE: CSV)
Carriage Services is one of the biggest death care providers in the US. Compared to other businesses on the list, the company operates on a partnership model. Carriage Service lets previous owners of funeral homes that it acquires continue to run them.
The company has two operating verticals, funerals and cemetery. The funeral vertical provides burial services, funeral services, and caskets. The cremation vertical provides interment services, rights to interment services, memorials, and vaults. The company owns 183 funeral homes across 29 states and 29 cemeteries across 11 states.
The company reported record first-quarter results in FY21. Carriage Services reported revenues of $96.6 million, up 24.7% YoY, EBITDA of $45.8 million, up 52.1% YoY, and net income of $12.9 million, up 408% YoY. In addition, the company reported a massive increase in margins, with EBITDA margins growing 8% to 47.4% and free-cash-flow margins growing from 11.8% to 28.1%.
Hillenbrand (NYSE: HI)
Hillenbrand is not a pure death-care/funeral sector stock as it has multiple other lines of business; it is one of the largest casket providers and cremation product manufacturers in the US through its Batesville brand. Apart from Batesville, the company has a portfolio of brands that operate in the industrial equipment space.
Under Batesville, the company provides high-quality burial caskets, cremation urns, and memorialization products. The company also provides technology services to funeral professionals for planning services.
In Q2 FY21, the company reported consolidated revenues of $722 million, up 11% YoY, and net earnings of $78 million, up 4% YoY. Their Batesville business performed very well with revenues of $166 million, up 20% YoY, and EBITDA of $45 million, up 39% YoY.
Matthews International Corp. (NASDAQ: MATW)
Like Hillenbrand, Matthews International is not a pure death-care sector stock. However, it has deeper exposure to the business than Hillenbrand. Matthews, too is in the industrial equipment space.
Under its Memorialization segment, the company produces high-end caskets and high-end metal decorative work for tombstones and funeral homes. Under its Industrial Segment, Matthews produces crematoria equipment, making it a great play considering the growing cremation rates in the US and Canada.
In Q2 FY21, the company reported revenue of $417.2 million, up 11.3% YoY, and EBITDA of $60.9 million, up 23% YoY. Net income for the quarter was just $5 million due to a debt reduction of $42.1 million in the quarter. Adjusting for the debt reduction, net income was $28.8 million, up 45% YoY.
A Great Non-Cyclical Play
n Canada, the 60-79 age bracket has more doubled since 1980 and is projected to make up nearly 18% of a projected total population of 62 million people by 2060. Furthermore, the 80+ age bracket is expected to quadruple by 2060. In the US, the 60-79 age bracket is expected to grow from 13% of the total population to 21% by 2060, with the 80% age bracket expected to quadruple by the same.
High barriers to entry also aid the sector because of less zoning of land for burial purposes and no shortage of burial plots. Apart from that, the large players in space have significant operations in both traditional funerals and cremations. Thus making the sector a great non-cyclical and non-discretionary play.
Funeral Home Stocks Canada
Park Lawn Corporation (TSX: PLC) is a Canadian provider of funeral, cremation and cemetery facilities with 103 cemeteries in Canada, the United States and the United Kingdom. The company’s footprint is growing, and as of December 31, 2018, 481 Centeraphs had been operated and operated, including a total of 1,843 Ceteris tracks and cremation operations covering more than 2,500 hectares of land in Ontario, Quebec, New Brunswick, Nova Scotia, Ontario and Quebec City. Sources: 8, 9, 15
By the end of the 1993 financial year, the Loewen Group had acquired 1,000 undertakers in Canada and the United States. The company has since acquired more than 2,500 hectares of land in Ontario, Quebec, New Brunswick, Nova Scotia, Ontario, and Quebec City to benefit from its presence in the burial, cremation, and cemeteries market. At the end of the 1994 financial year, the company had acquired or acquired 108 undertakings and 46 cemeteries. And as of 31 December 2018, it has acquired at least one more cemetery site, further benefiting from the strong growth of its cemetery business. Sources: 5
As many companies operate undertakings, cemeteries and crematoria, the line between the different funeral services becomes blurred, and the consolidation trend is driven by necessity. Companies that have acquired nearby funeral homes and cemeteries will pool their burials and burials, just as cars and employees can be pooled at multiple locations. As the funeral industry – that is, the ownership of the house – consolidates, coffin production also goes through its own consolidation phase. Sources: 1, 4
So in North America, most funeral companies – which are listed and traded directly – have behaved themselves or behaved in this way. There are several smaller funeral homes in Canada, often owned by the same family or generation. Sources: 6, 14
Listed Hillenbrand Inc. and Matthews International Corporation manufacture and sell coffins, urns and other items for funeral companies. Both companies own or operate 798 funeral homes and 62 cemeteries and, most recently, more than 1,000 funeral homes and houses in Canada. There are many smaller undertakers in the US, some of which belong to the same family or family members or a single owner with a long tradition of business practices. The Company owns or operates a total of 3,500 funeral homes in North America and a cemetery in New York. Sources: 4, 7, 8, 14
At the top of the food chain, SCI is the largest funeral company in the United States and the second-largest in Canada. Sources: 1
Park Lawn is a growth machine that can devour funeral homes as quickly and as well as it can. In cemetery space, growth seems to be concentrated in US crematoria, cemeteries and funeral homes. The shortage of burial land suggests a greater demand for cremation than for burials in the United States. Undertakers are Canada’s second-largest funeral industry after SCI, with a market value of $1.5 billion. Sources: 0, 9, 10
Undertakers also find it difficult to get the extra supply they need if business picks up unexpectedly, Cole said. If the undertaker fails, the advance payment for a funeral can result in a loss of money. There are also concerns that some will use the stress inflicted on small, independent funeral companies as an opportunity to make opportunistic takeovers. Sources: 2, 11, 13
The Service Corporation has a big competitive advantage due to its size, but the funeral and cemetery business is very locally oriented. The only funeral company listed on the Toronto Stock Exchange is under pressure from its competitors. I think this is a great opportunity for a very focused company on funeral and burial services. It could diversify its offering and even produce more than just coffins and burials in the funeral-assistance segment, focusing on the funeral industry. Sources: 0, 4
PLC operates funeral services in the Toronto area, making it one of the largest providers of funeral and burial services in Canada and the world. Sources: 10
With 132 undertakers and cemeteries, Arbor is one of the largest funeral and burial service providers in Canada. From its customers “hand in funeral services to its role as Canada’s largest funeral services provider in the funeral industry, the company has grown to become a major funeral services provider in eight provinces in Canada and the United States. The nation’s largest provider of assisted dying services is owned by SCI and provides services to more than 1,000 families in Ontario, British Columbia, Alberta, Saskatchewan, Manitoba, Newfoundland and Labrador, Nova Scotia, New Brunswick, Ontario and Quebec. Sources: 1, 3, 8, 11
The equipment used by undertakers, cemetery and crematorium operators, and other equipment required by these undertakings, is manufactured by the company itself. The SPS and its subsidiaries own and operate undertakings, including an undertaker, undertaker, crematoria, planning offices and a cremation facility. Sources: 4, 12
This type of company owns the undertaker or funeral home, where they organize funerals and perform ceremonies. Traditional burials usually involve the burial of a body in a private cemetery, crematorium or cemetery or cremation facility. They own or own funeral homes and funeral homes in the United States, Canada and other countries. Sources: 4
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