Download We used two valuation methods for valuing Carriage Service Inc., a

Carriage Service Inc. (NYSE– CSV)
Executive Summary
TO
FROM
DATE
RECOMMENDATION
Current Price
(as of 4/17/2017)
$27.49
: RCMP Client
: Manik Malhotra, Quintus Yang
: April 18th, 2017
: Buy 200 shares at market price
P/E Ratio
Market Cap
52 Week Range
24.54
$459.18M
$21.67– $29.11
Company Overview
Carriage Services, Inc. provides funeral and cemetery services and merchandise in the United States.
It was Co-founded in 1991 in Houston, Texas and Publicly traded on NYSE under symbol “CSV” in
1993. As of December 31, 2016, the company operates 170 funeral homes in 28 states & 32
cemeteries in 11 states. The company provides funeral and cemetery services and products on both an
‘at-need’ (time of death) and ‘preneed’ (planned prior to death) basis. The company has acquired 6
funeral homes in year 2016.
Industry Overview
Carriage Service Inc. operates in the funeral and cemetery services industry. The industry is highly
fragmented, with top three players account for 20% of market share and the rest account for 80%. And
the majority of industry players are small local firms, which only operate one funeral homes or
cemeteries and serve customers 10 to 15 miles around. The top two players are Service Corporation
International (SCI) and StoneMor Partners (STON), which each represent 15% and 3% of market
share. Carriage Service Inc (CSV) is the third largest player in the industry, accounting about 2% of
the market share. Because the outstanding performance of CSV and bad operations of STON, the
company is likely to become the second largest player in the near future.
Macroeconomic Outlook
The funeral and cemetery services industry is dependent on several macroeconomic factors that can
affect industry performance. First, the number of aging population and the increase in death rate. Due
to the baby boomer factor, the aging population has grown significantly in recent years. And this
correlates to the increasing death rate. Second, the shift from burial to cremation. During the past few
years, the number of cremations has continually increasing due to cheaper cost, this will negatively
impact the industry revenue. Third, the amount of disposable income per capita. Higher disposable
income often means higher spending on the related funeral services and burial instead of cremation.
Valuation
We used two valuation methods for valuing Carriage Service Inc., a comparable company analysis
and DCF analysis. For the comparable company analysis. In the comparable company analysis, we
chose SCI and STON as direct comparable companies, and another two companies which has 40%
revenue in cemetery services as indirect comparable companies. Since CSV has better profit margin
than its peers, we marked up its forward multiples and achieve a price range of $31 to $34.5. In the
DCF model we used a long-term growth rate of 3% and a discount rate of 10% and terminal discount
rate of 8% that we feel accurately represents the risk of holding CSV. We used a more conservative
top line growth rate compared to their management projections and derive a value of $32.5
Recommendation
After our analysis, we recommend to buy 200 shares at current market price. On the one hand, our
valuation signaled that it’s an undervalued stock. On the other hand, we are quite positive about the
company’s long term stock prospects. First, baby boomer means that there are more aging population,
Second, the company has the best profit margins among its peers and it has showed its ability to
reduce overhead cost after acquisitions in the past few years. And the company will likely to remain
this trend in the next few years. Third, Carriage Service Inc could potentially be acquired by the
Service Corporation International. Service Corp International has acquired Steward Enterprise with
$1.4 billion in 2013, which is the second largest company at that time. We could get a premium if the
transaction occurred in the future.