If you follow the death care industry, the one name you probably know is Service Corp. International (NYSE: SCI).  There is a second tier small player that many haven’t heard of named Carriage Services Inc. (NYSE: CSV).  We noticed this one today in our screening of 52-week lows, although it barely went under that prior $6.10 52-week level and has since come back up to $6.25.

As of December 31, 2007, Carriage Services operated 139 funeral homes in 25 states and 32 cemeteries in 11 states; and the company is based in Houston, Texas (that’s important, read on).  As of a week ago it is operating under a new CFO.  A month before that the company instituted a $5 million share buyback.  But if you look at the chart and action you might think that suddenly people are too financially strapped to die or are at least too strapped to pay for a decent funeral when they do die.  This has fallen from late-2007 highs of over $11.00 and shares are now challenging 52-week lows and with one more day like today would be back under $6.00.

This stock came back from the grave (no pun intended) after goingdown to essentially $1.00 at the lows of 2000 and 2001.  Before youstart throwing a reward party for it still being up over 400% look backinto the 1990’s and you’ll see that this used to be a $20.00 stock.What is interesting is that the company is still making money.  It isalso barely covered by Wall Street. 

If you have followed the funeral home sector very long you likelyknow that Service Corp. International (NYSE: SCI) recently made anoffer (around $881 million) to Jefferson, Louisiana-based StewartEnterprises Inc. (NASDAQ: STEI) which was rejected.  Stewart’scompany’s market cap is $751 million today.  Service Corp.International has a market cap of $2.51 Billion as of today and itsshares are only about 7% above 52-week lows.  Guess where Service Corp.is based…. Yep, Houston.

We wanted to look up some key data on Capital IQ as well.  Thecompany has board members that are well heeled in with investment andprivate equity funds as well.  Capital IQ does note that it has activetakeover defenses, so even the hint of any deal would have to be onewhere management either deemed friendly or one that the board wants.Here are some of Capital IQ’s Anti-takeover defenses listed:

• It has a classified board,
• directors can only be removed for cause,
• it takes 80% of shareholders needed to remove a board member,
• board members are indemnified, 
• it has an active poison pill provision with no weakening provision,
• it can issue blank check preferred stock,
• and insiders own a decent chunk of stock.

Carriage Services is far smaller in size than the others as itsmarket cap is a mere $119.5 million.  If the company wants to at leastput in an implied floor in the stock, there are at least a couplelarger companies the company could call to see if there’s any interest.

As far as the initial question if people are currently too poor inthe current environment, Service Corp.International on its websiteoutlines how about 13% of the company’s current revenues are economically sensitive.

Jon C. Ogg
July 18, 2008

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