UBS has reaffirmed its confidence in Service Corp. International (NYSE: SCI) with a steadfast Buy rating and an $87.00 price target.
The reiteration comes in response to investor concerns about the company's recent stock performance, which has been influenced by fluctuations in death data from the Centers for Disease Control (CDC).
UBS addressed these concerns, emphasizing the unreliability of CDC's most recent data due to delayed reporting from various jurisdictions.
UBS pointed out that the CDC's data often takes up to a month to normalize and that the recent apparent decline in deaths could be exaggerated by reporting delays, possibly exacerbated by recent volatile weather conditions.
Service Corp. International management also acknowledged receiving inquiries about the dip in reported deaths and concurred with UBS's assessment regarding the CDC's near-term data issues.
According to UBS's Weekly Chartbook, Service Corp. International experienced sluggish death counts in May and June. However, during the company's second-quarter conference call, management indicated that case volumes had returned to budgeted levels in the early third quarter.
Despite the recent data irregularities, the company has not communicated any changes in its expectations for the second half of 2024 as the third quarter draws to a close.
In other recent news, Service Corporation International (SCI) has announced significant executive changes, a move aimed at driving long-term growth and maintaining a robust succession plan. The company has also announced an $800 million public offering of 5.75% Senior Notes due in 2032, managed by Wells Fargo Securities. The proceeds from the sale are intended to repay existing loans under the company's revolving credit facility.
On the earnings front, SCI reported a decrease in Q2 2024 earnings per share (EPS) to $0.79, due in part to a 2.7% fall in funeral volumes. Despite this, the company has maintained a positive outlook, projecting revenue and margin growth in the latter half of 2024 and a return to EPS growth in 2025.
In addition to these developments, SCI declared a quarterly cash dividend of $0.30 per share. The company's Q2 financial performance was balanced by increased cemetery profits, with gross profits rising by $5 million. SCI also reported an increase in adjusted operating cash flow by $62 million from the prior year, reaching $220 million.
InvestingPro Insights
To complement UBS's analysis of Service Corp. International (NYSE:SCI), InvestingPro data offers additional context for investors. The company's market capitalization stands at $10.6 billion, with a P/E ratio of 21.28, suggesting a relatively high valuation compared to earnings. This is further supported by an InvestingPro Tip indicating that SCI is "Trading at a high P/E ratio relative to near-term earnings growth."
Despite recent concerns about death data fluctuations, SCI has demonstrated financial resilience. The company's revenue for the last twelve months as of Q2 2024 was $4.14 billion, with a modest growth of 2.21%. Moreover, SCI has maintained a strong dividend track record, as highlighted by an InvestingPro Tip: "Has raised its dividend for 10 consecutive years." This commitment to shareholder returns is reflected in the current dividend yield of 1.64%.
For investors seeking a more comprehensive analysis, InvestingPro offers 10 additional tips for SCI, providing a deeper understanding of the company's financial health and market position. These insights can be particularly valuable given the recent focus on CDC data and its impact on SCI's stock performance.
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