Carriage Services - Momentum

By Zacks | November 08, 2012 AAA

Carriage Services Inc. (CSV) reached a 52-week high of $11.44 on November 6; less than a week after this death care services provider announced solid third quarter results that included a double digit positive earnings surprise. With strong estimate revisions, accretive acquisitions, a financial benefit from the new credit facility and an enhanced outlook for the rolling four quarter period, this Zacks #1 Rank (Strong Buy) has now reached the momentum radar.

Sturdy Third Quarter

On November 1, Carriage Services posted adjusted earnings per share of 16 cents for the third quarter, beating the Zacks Consensus Estimate by 14.3% and surging past the year-ago performance by 60%.

Revenues climbed 14.0% year over year to $49.5 million. Segment wise - Funeral revenue jumped 12.3% to $35.0 million, Cemetery revenue increased 15.7% to $10.2 million and Financial revenue advanced 27.3% to $4.2 million.

Total Field EBITDA margin expanded 310 basis points (bps) to 37.9%, benefiting from an increase of 240 bps in the Funeral segment Field EBITDA margin, 420 bps in Cemetery segment Field EBITDA margin and 160 bps in the Financial segment EBITDA margin.

Adjusted Consolidated EBITDA enhanced 20% to $12.5 million and adjusted consolidated EBITDA margin crept up 120 bps to 25.2%.

During the quarter, the company also completed the refinancing of its 7.875% senior notes due 2015, worth $130 million, with a new $235 million syndicated bank financing. Through this transaction, the interest expense burden of the company is likely to reduce significantly.

Promising Outlook

Carriage Services raised its 'Rolling Four Quarter Outlook of Adjusted EPS' guidance to between $1.03 and $1.05 from the previous projection of 83 cents to 85 cents.

The company's acquisition pipeline also remains strong with two acquisitions expected to close by the end of the year, and six to eight deals expected in 2013.

Earnings Estimates Inching Higher

The Zacks Consensus Estimate for 2012 has been steady at 76 cents, representing a year-over-year growth of 15.7%.

The Zacks Consensus Estimate for 2013 is up 2.3% in the last 7 days to 91 cents per share, suggesting a year-over-year growth of 19.7%.

Attractive Valuation

Carriage Services' valuation looks compelling compared with its peers by most metrics. On a price-to-book (P/B) basis, shares trade at 1.59x, a discount to the peer group average of 1.94x. Also, the company has a price-to-sales (P/S) ratio of 1.03, a 17.6% discount to the peer group average of 1.25. Moreover, on a forward P/E basis, shares are trading at 14.97x, a nominal premium to the peer group average of 14.60x.

A Look at the Chart

After witnessing volatility in the past, the stock price has now started to correlate with the increasing trend in estimates. The year-to-date return for the stock is 104.1% compared with the S&P 500 return of 13.6%.

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Founded in 1991 and headquartered in Houston, Texas, Carriage Services is a leading provider of death care services and products in the United States. The company provides a complete range of services relating to funerals, burials and cremations, including the use of funeral homes and motor vehicles, the performance of cemetery interment services and the management and maintenance of cemetery grounds. With a market capitalization of $206.3 million, Carriage Services primarily competes with Stewart Enterprises, Inc. (STEI).

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