No company could be in a better position to profit from Coronavirus than Service Corporation International (NYSE: SCI). SCI claims to operate over 1,900 funeral homes in 44 American states, the District of Colombia, Puerto Rico, and eight Canadian provinces.
COVID-19 could change SCI’s business because there had been 38,244 coronavirus deaths in the United States as of 18 April 2020, Worldometer estimates. Hence, the United States is facing mass casualties for the first time since the Spanish Flu of 1918 over a century ago.
In contrast, there were 2.814 million deaths in the United States in 2017, the Centers for Disease Control and Prevention (CDIC) estimates. Thus, the number of deaths so far is not enough to disrupt the funeral industry. However, there are places where coronavirus could change the funeral business.
For instance, New York has, so many bodies its government cannot find places to bury them. Incredibly, New York City Mayor Bill de Blasio (D) had to tell the press authorities will not bury bodies in city parks, USA Today reports. Instead, the city is considering using Hart Island a historic burial ground.
Does Service Corporation International Make Money?
Cynics will wonder if SCI can make money from coronavirus. Meanwhile, anybody who has ever had to arrange a funeral will wonder if Service Corporation (NYSE: SCI) is a value investment.
Currently, I think SCI is cheap because its shares were trading at $38.30 on 14 April 2020. Overall, Service Corporation’s share price fell from $41.34 to $38.26 on 14 April 2020, and $39.59 on 17 April 2020.
Conversely Service Corporation makes a little money from funerals. SCI made a gross profit of $217.87 million on revenues of $850.76 million for the quarter ending on 31 December 2019. Additionally, SCI reported a $240.94 million operating income and a $147.15 million common net income in the same quarter.
Moreover, SCI reported a $156.56 million operating cash flow and a $42.33 million ending cash flow on 31 December 2019. As a result, Service Corporation had $186.28 million in cash and short-term investments on 31 December 2019. Additionally, SCI had $13.677 billion in total assets on the same day.
Thus, I think SCI has little value because it makes small amounts of money. Moreover, I believe Service Corporation has a low margin of safety because it makes little cash.
What Growth Potential Does Service Corporation International Have?
There is a popular theory that Service Corporation International (NYSE: SCI) has high growth potential because of America’s aging population.
To explain there were 52 million Americans over 65; roughly 16% of the population in 2018. Moreover, the Population Research Bureau claims the number of Americans over 65 will grow to 95 million by 2060.
Moreover, the average life expectancy in the United States was 78.6 years in 2017, the CDC estimates. Hence, 52 million Americans are within 13.6 years of death. Thus, SCI has 52 million potential customers in the United States.
Interestingly, SCI’s “customer base” could grow to 95 million people by 2060. Thus, Service Corporation could be a safe company because its business could grow dramatically in coming decades. Conversely, Stockrow estimates SCI’s revenues grew at a rate of 3.65% in the last quarter of 2019.
Will Future Pandemics Disrupt SCI’s business?
Beyond old age, coronavirus demonstrates that death from infectious disease can explode in a short time. Additionally, the World Economic Forum claims pandemics are becoming more frequent because of modern transportation.
For instance, a new disease could spread from one side of the world to another in 36 hours, the World Economic Forum estimates.* To explain, one sick person can get on a plane and take an infection to another continent in eight or 10 hours.
Accordingly, researchers at the Grossman School of Medicine think the coronavirus originated in China’s Hubei province in December 2019, spread to Europe, and moved to New York City by March 2020. Hence, deadly pandemics can emerge fast and disrupt SCI’s business.
Is Service Corporation International a Good Stock?
Oddly, dividends prove the growth theory about Service Corporation International (NYSE: SCI). Dividend.com credits SCI with eight years of dividend growth.
Notably Service Corporation paid a 19₵ quarterly dividend on 12 March 2020. That dividend rose from 18₵ on 12 December 2019.
Overall, each SCI share delivered a dividend yield of 2%, an annualized payout of 76₵, and a payout ratio of 41.61% on 17 April 2020. Thus, SCI is a nice dividend stock.
If you are seeking a cheap growth stock that pays a good dividend, Service Corporation could be a good choice. Hence, those seeking a stock that could make money from an aging population need to look at SCI.
Originally published at https://marketmadhouse.com on April 18, 2020.