A Look At Service Corporation International (SCI) Valuation After Recent Share Price Volatility

Recent share performance and business snapshot

Service Corporation International (SCI) shares closed at US$76.51, with the stock showing a 1.4% gain on the day but negative returns over the past week, month, past 3 months, and year.

Over longer horizons, SCI reports positive total returns for the past 3 and 5 years, alongside annual revenue of US$4.31b and net income of US$542.61m from its funeral and cemetery operations in the United States and Canada.

See our latest analysis for Service Corporation International.

The recent 1-day share price return of 1.43% comes after weaker short term moves, with the 7-day and 30-day share price returns of 3.72% and 3.40% declines. In contrast, the 3-year and 5-year total shareholder returns of 20.32% and 62.34% point to a stronger longer term record.

If you are reassessing SCI and want a broader view of where capital could go next, it is a good time to broaden your search and consider 20 top founder-led companies

With SCI trading at US$76.51 and indicators such as a reported 24% intrinsic discount and a sizeable gap to analyst targets, the key question is whether this points to a genuine opportunity or if the market is already pricing in future growth.

Most Popular Narrative: 21.8% Undervalued

With SCI at $76.51 against a narrative fair value of $97.83, the widely followed view sees a clear value gap built on detailed long term assumptions.

Continued investments in greenfield expansions, digital transformation, and strategic acquisitions (with a robust acquisition pipeline exceeding guidance targets) are expected to support long-term revenue growth, operating leverage, and higher earnings through market consolidation and digital up-selling of services.

Recently enacted federal tax legislation enabling ongoing accelerated depreciation and software amortization is anticipated to provide a sustainable $30 million annual benefit to cash taxes, enhancing free cash flow available for reinvestment, M&A, and shareholder returns, thereby bolstering overall earnings growth.

Read the complete narrative.

Curious how steady mid single digit revenue growth, rising margins and richer earnings multiples combine into that valuation gap? The narrative leans on consistent profit expansion, share count reduction and a higher future P/E to bridge today’s price to its fair value path.

Result: Fair Value of $97.83 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, you also need to weigh the risk that higher cremation rates and SCI’s sizeable debt position could pressure both margins and future financial flexibility.

Find out about the key risks to this Service Corporation International narrative.

Another way to look at valuation

While the narrative and DCF view suggest SCI trades at a discount to fair value, the P/E picture is less forgiving. At 19.6x earnings versus 16.9x for the US Consumer Services industry and 13.5x for peers, investors are already paying a richer price than many comparables, even if the fair ratio of 21.9x indicates the market could move higher over time. This raises an important question: is this a margin of safety, or a premium that deserves extra scrutiny?

See what the numbers say about this price — find out in our valuation breakdown.

Next Steps

Mixed signals so far, with valuation, growth expectations and balance sheet questions pulling in different directions, so it makes sense to look at the underlying data yourself and then weigh up the 4 key rewards and 2 important warning signs

Looking for more investment ideas?

If SCI has you rethinking where your money works hardest, do not stop here, there are plenty of other opportunities waiting for a closer look.

• Target steadier growth potential by reviewing companies on the 56 high quality undervalued stocks that pair quality fundamentals with pricing that may not fully reflect their current metrics.
• Prioritise resilience by scanning the solid balance sheet and fundamentals stocks screener (39 results) for businesses with stronger financial footing that can support operations through a range of conditions.
• Strengthen your income focus by checking the 12 dividend fortresses for companies offering higher yields that might complement a long term, cash focused portfolio.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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