Carriage Services: A Stock to Die For

Carriage Services (CSV) provides death care merchandise and services including funerals, cremation, caskets, funeral home and cemetery facilities etc. The company operates 136 funeral homes and 32 cemeteries in 11 states.

CSV shares have plummeted from over $11 after a proposed buyout of the company was cancelled. Management has been actively taking advantage of what they feel is a major undervaluation in the share price by repurchasing shares. Through October they had retired over 1.347 million shares [out of 19.22 million outstanding at Y.E. 2007] at an average cost of $3.68 /share.

Company insiders have been steady buyers also with 11 separate open-market purchases since July 3rd at prices ranging from $7.17 down to $1.99.

Recent Insider Trading Activity: Carriage Services Inc

Earnings have been decent with the past three years' per share numbers shown here:

Year……Sales ….. Cash Flow …… Earnings …. Book Value
2006 …..$8.12 ……. $0.67 ……….. $0.20 ……… $5.18
2007 …..$8.73 ……. $0.89 ……….. $0.39 ……… $5.56
2008 …..$9.75 ……. $0.99 ……….. $0.23 ……….$5.80

2008 figures include Q4 consensus estimates

Regardless of how bad economic conditions may get, people are still going to die. Carriage Services shares now trade at just under 10 times 2008 estimates and 6.7 times the company's own projection of $0.34 for 2009. CSV also now trades at a 60% discount to book value.

Management has expressed confidence in their future by buying shares for themselves and for the company. They have shown a willingness to sell the entire firm and a renewed offer by another industry player is a distinct possibility for the future. Even a lower offer than was on the table previously might see a doubling or tripling of today's share price.

What price target seems reasonable here? CSV shares hit peak prices of more than book value in 2005 – 2006 and 2007. Even one times current book value would bring shares back towards $6 within a year or up more than 160%. A price/earnings of just 10x 2009 projections leads to a $3.40 price over the next 13 months or + 49%.

Is it realistic to think we could see $5 or higher over the next year or two?

These shares traded at $5.50, $6.75, $5.25, $11.09 and $9.45 at their highs in each calendar year from 2004 right through 2008. In fact, excepting recent weeks, the absolute lows in those same years ran from $3.72 (in 2004) to $4.12 (in 2006). Even those old lows would provide a very nice return from the current price.

Disclosure: Author is long shares of Carriage Services.

Comments

[Carriage long:]

Paul, interesting piece and it is nice to finally hear another bull on this stock. I have been in this stock now for a few years, had a round trip after buying around $4 to $10 area and bought more in the $10 area to come back down to these levels. Very frustrating. I still like the long-term trends of the company, for some of the reasons that you point out, and feel that on a cash flow yield basis this stock is extremely cheap. Just a few questions:
-what failed buyout are you referring to? I never have seen anything on this
-what are your thoughts about the new roll out of a sales force? I took that as more of a marketing ploy for the stock only so management can point to something new
-my worry is cremations, especially in a down market as they cost less and afford half the margin of a regular death service. With cremations at 39.8%, this is getting to be significant
-have you looked at STON? It is structured as an MLP and offers a 19.8% yield. Obviously very levered to get that kind of payout, but on a relative value basis it seems compelling

I continue to like CSV and may buy more at these levels, but am cautious given the relative value mentioned above and the cremation outlook. I was always curious of the real estate play for these sights and if there is any excess value that the market ignores (BV of land at 12/31/07 was $32mm which is almost equal to the market cap of the company now). In this market, no one probably cares about real estate and there are probably multiple hurdles given that the real estate is occupied by dead people, but there could be a higher and better use (sorry, all business here!).

2008 Dec 09 11:35 PM

[Ludovici:]

Once again, I'm wondering what your thought is on the long-term debt of CSV, which looks like twice the equity. not a concern?

2008 Dec 26 09:59 AM

[Paul Price:]

While long term debt is substantial CSV has no debt coming due in the next five years and plenty of cash flow to service exisiting obligations.

I expect the credit markets to be much more normal by the time they need to refinance their long-term bonds.

2008 Dec 26 11:11 AM

[Carriage long:]

Paul, can you please take the time to address my previous questions, specifically:
-what failed buyout are you referring to? I never have seen anything on this
-your thoughts on cremations and the growing percentage that they represent for CSV?
-have you looked at STON?

Thanks for your help and opinion.

Also, on Ludovici comments about leverage, I think that CSV is efficiently capitalized. Yes, debt is high but their coverage is over 2x which more than adequately covers interest payments. I would like to see CSV draw on their revolver and buy back their debt at a discount or even pursue a debt for equity swap at the current levels that their debt is trading. This would be accretive and a good way to lower interest burden.

2008 Dec 26 01:15 PM

[Carriage long:]

Paul, come on...please answer the questions in my previous post.

Jan 07 02:00 PM

[User 58223:]

Failed buyout happened with STEI not CSV


On Jan 07 02:00 PM Carriage long wrote:

> Paul, come on...please answer the questions in my previous post.

Apr 12 07:55 PM

[Paul Price:]

Three Insider buys on Carriage Services were reported in this week's Barrons.

16,517 shares total for $56,000 or $3.39 /share average price.



These shares are now up 41.6% since my December 4, 2008 write-up.

Jul 19 08:19 AM

[U Dontknow ...:]

Nice pick.

Jul 20 07:39 AM

[jkrishna:]

Great look at Carraige services. For more information on the Funeral Home Corporations, and the entire death care industry, take a look at the following Yahoo Finance article:
finance.yahoo.com/news...

Aug 27 02:07 PM