In This Article
Service Corporation International (NYSE: SCI)
$86.35
Overall Grade6.2 / 10
Service Corporation International, founded in 1962, is the largest provider of death care services in North America operating primarily in the Consumer Discretionary sector. The company specializes in managing funeral homes, cemeteries, and cremation services across the United States...
Grades
Valuation
Profitability
Growth
Debt
Dividend
Valuation
P/E20.5
P/B6.6
P/S2.5
P/FCF19.6
FCF Yield+5.1%
Growth & Outlook
Rev Growth (YoY)+2.9%
EPS Growth (YoY)+7.0%
Revenue 5yr+4.2%
EPS 5yr+5.5%
FCF 5yr+0.7%
Fundamentals
Market Cap$10.9B
Dividend Yield1.6%
Operating Margin+22.7%
ROE+32.7%
Interest Coverage3.8x
Competitive Edge
- SCI operates 1,900+ locations creating a distribution density moat that no competitor can replicate. The cost to build a new funeral home or cemetery from scratch, including zoning and community resistance, makes new entry nearly impossible in established markets.
- The preneed model creates a self-reinforcing flywheel: insurance-funded preneed contracts generate commission income today while locking in future funeral revenue at pre-set prices, effectively hedging against cremation rate compression on a per-case basis.
- Regulatory barriers in death care are intensifying, not easing. State-level licensing, FTC Funeral Rule compliance, and environmental regulations around embalming and cremation emissions favor scaled operators who can absorb compliance costs across thousands of locations.
- SCI's cemetery business is an irreplaceable real asset with perpetual demand. Unlike funeral homes, cemeteries cannot be relocated or replicated, and pre-sold plots generate deferred revenue that converts to recognized revenue upon interment with minimal incremental cost.
- The cremation trend, often cited as a headwind, actually improves SCI's competitive position. Independent operators struggle to invest in cremation facilities and memorial services, accelerating market share consolidation toward SCI's branded offerings like Neptune Society.
By the Numbers
- FCF-to-net-income conversion of 1.02x signals high earnings quality, with OCF-to-net-income at 1.74x showing strong non-cash add-backs from depreciation and deferred revenue. This is a business where reported earnings understate cash generation.
- Preneed insurance-funded sales production surged 18.4% YoY to $858M, with contract counts up 36.7% to 164,591. This backlog growth is a leading indicator of future funeral revenue that the market likely underweights given the 2-3 year lag to maturity.
- Cemetery gross profit margin expanded to 33.8% in FY2025 (up from 33.6% prior year) while cemetery revenue grew 2.2%. Cemetery gross profit has now grown for two consecutive years after FY2022's decline, showing operating leverage returning.
- SG&A-to-revenue of just 3.9% is extraordinarily lean for a $4.3B revenue company, reflecting SCI's scale advantages over fragmented independent operators. SBC-to-revenue at 0.4% means virtually no hidden dilution cost inflating margins.
- Buyback yield of 4.0% is genuinely shrinking the share count, not just offsetting dilution. Combined with the 1.7% dividend yield, total shareholder yield approaches 5.7% before debt paydown effects.
Risk Factors
- DCF base case target of $24.87 implies roughly 69% downside from the $79.60 price. Even the aggressive target of $31.23 sits well below current levels, suggesting the market is pricing in growth or strategic value the DCF model cannot capture.
- Net debt/EBITDA at 3.65x with interest coverage of only 5.2x leaves thin margin for error. With $4.9B net debt and OCF-to-debt of just 18.5%, it would take over 5 years of current FCF to deleverage, creating refinancing risk if rates stay elevated.
- Funeral preneed trust-funded sales production collapsed 29.2% YoY to $340M, with contracts down 49.6% to 57,295. This channel is being cannibalized by insurance-funded products, but the trust fund shrinkage reduces SCI's investment income optionality.
- Property and merchandise revenue has declined four consecutive years, from $2.14B in FY2021 to $2.08B in FY2025. This persistent erosion reflects the secular shift toward cremation, which carries lower merchandise attachment rates.
- Current ratio of 0.55 and quick ratio of 0.46 indicate the company relies on continuous cash generation to meet short-term obligations. Any disruption to operating cash flow, such as a trust fund impairment, would stress liquidity immediately.
