Editor's note: This column was submitted by Stockpickr member Susanne Owen, also known as the Trading Nymph.Hello Serious Investor Types, my name is Nymph and I normally hang out at Stockpickr.com. This is my first article submitted to TheStreet.com, so be gentle and join me because I am in the mood -- the mood for a little death. The death business, funeral homes specifically, is doing well even with increased life expectancies. Why is that the case? Only one word: acquisitions. Almost everyone in the business has been trying to buy up any decent independent funeral establishment, and if you were fans of Six Feet Under you would have already seen it coming. If you're not a fan, the protagonists' family funeral home business was always trying to be bought out by a national chain. (As an aside, wasn't the last 10 minutes of that series the best TV ending ever? Everyone in the cast ages and then dies ... perfect ending.) Getting back to death, the midyear quarters normally reflect the slowest time of year in the funeral services industry. If you want higher death volumes, check out the first and fourth quarters -- winter is very good for business. Each of the four companies I feature here has had a 20% or more gain in share price over a year period, with one sporting a 70%-plus gain.
One common theme is that even though there are fewer funerals, the average cost of the related services has increased around 4% throughout the industry. It seems most people have yet to discover they can buy their caskets wholesale at Costco ( COST). As a result, people are paying more for such products and services. The industry is also focusing on so-called pre-need contracts, paying up for services before they are actually needed. These proceeds go directly to the companies' bottom lines. First up is Carriage Services ( CSV), shares of which have climbed more than 75% since this time last year. Carriage Services reported its second-quarter results in August and its CEO, Melvin Payne, reported that revenue increased by 11% year over year to $41.7 million and earnings rose to 10 cents from 3 cents last year. The 16-year-old company, which is based in Houston, has 135 funeral homes in 27 states. Carriage Services says it does not want to borrow money to make acquisitions but would rather use its own cash. It's looking in the Los Angeles area for buying opportunities. According to Yahoo! Finance, the $162 million market-cap company has $14 million in cash and more than $200 million in debt. Next is StoneMor Partners ( STON), another small-cap company that reported second-quarter results last month. Revenue rose more than 43% to $40.7 million, and net income showed a 300%-plus rise -- $1.1 million to $4.7 million.
The Bristol, Pa., company, a structured partnership founded in 1999, operates 27 funeral homes and 178 cemeteries in 21 states. It has been making acquisitions, the benefits of which have yet to peak. In April, StoneMore bought two more independent businesses and it's looking for more. On the conference call, the finance chief said we can expect the great performance to continue as pre-need contracts are up and funeral home business is up. StoneMor is cutting corporate overhead by decreasing employee benefits and having employees pay higher co-pays. That's all good news for the bottom line, just not great for employees who now have to pay a higher premium for their health care. Next up is Stewart Enterprises ( STEI), which held its third-quarter conference call earlier this month. This Louisiana-based company reported a drop in revenue -- to $128.3 million from $129.3 million -- but indicated that in its previous fiscal year it got a lot of insurance money from Hurricane Katrina. Profit rose more than 10% to $8.1 million from $7.3 million. On a non-GAAP basis, gross profit rose 36% after adjusting for all the Katrina payout. The company, which financed a stock repurchase of 7.7 million shares using debt, indicated that the next time it undertakes a share-repurchase, it will fund it using only cash flow.
The company, which has a market cap of $717 million and was founded in 1910, owns and operates 223 funeral homes and 141 cemeteries in the U.S. and Puerto Rico. This company also has been a fave of Mohnish Pabrai in the past. Last is Service Corp. International ( SCI), which reported second-quarter results last month. This $3.5 billion market-cap company was not busy acquiring but rather was focused on divesting. The company reported a disappointing profit of $15.1 million, a 40% drop from $25.5 million the year before and well below the $32.7 million Wall Street was expecting. Service Corp. has been dealing with divestiture tax costs, recently selling its interest in a French joint venture. The profit from the sale may be used to fund a share-repurchase program. Houston-based Service Corp. was founded in 1962 and provides funeral and cemetery services primarily in North America and Germany. It operates more than 1,500 funeral homes and 400 cemeteries in 45 states, Canada and Puerto Rico. Now, I must give an opinion on these stocks. Since I first developed this idea on Sept. 16, STEI has gone up 11.73%, with a declared dividend of 2.5 cents and a repurchase announcement. SCI has had a 4.37% jump based on the selloff of four of its properties, STON is up 0.57% and CSV is actually down 3.91%, but neither of those two have had news come out. Even with the run-up of STEI, I believe they are all still buys, especially STON, who may be purchasing more properties. For more analyses, check out conference calls for September 2007, Nymph-style at Stockpickr.com. Please note that due to factors including low market capitalization and/or insufficient public float, we consider Carriage Services and Stonemor Partners to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.