SERVICE CORPORATION INTERNATIONAL (SCI): what the price requires

Generated: 2026-07-14 · Exported: 2026-07-16 · Source: https://boothcheck.com/report/SCI

Headline

Field	Value
Ticker	SCI
Company	SERVICE CORPORATION INTERNATIONAL
Current price	$79.77/sh
Composition	Property and merchandise revenue 48% / Service revenue 42% / Other revenue 10%

What The Price Requires (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

Field	Value
Inversion basis	whole-company
Operating margin needed	9.8%
Operating margin today	22.0%
Margin compression implied	-12.2pp
Implied growth	-3.2%
Multiple paid	17x operating income

The operating-margin requirement is derived from the framework's value band at year 12, a separately labeled basis from the headline growth/duration solve.

Solve inputs: computed at a 7.1% cost of capital with 4% terminal growth over a 5-year stage; each 1pp of cost of capital moves the implied operating-profit growth ~7.3pp.

Reconcile: at the x-ray's 9.3% required return this reads ~11.4%/yr; the models below use their own rates.

How unusual the bet is: within-range

Reference	Value
vs own history	-0.89σ
cohort percentile (of 210 peers)	44
implied end-window share	0%

Valuation X-Ray

Every valuation family lands below the price. The price therefore requires assumptions beyond what those standard frames encode.

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

Family	Median price/FV	Models	Reads
Asset	1.93x	5	expensive
Earnings	1.74x	4	expensive
Relative	1.52x	5	expensive
Growth	1.29x	3	expensive

Families that call it expensive: Asset, Earnings, Relative

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 6.6%); the inversion above states its own rate.

Per-Model Detail (n=17)

Model	Family	FV	Price/FV	Applicable	Methodology
DCF Perpetual Growth	Growth	$37.89	2.11x	yes	FCF base $0.6B, growth 0% (input: historical growth), terminal g 0.5%, WACC 6.6%, 5yr projection
DCF Exit Multiple	Growth	$86.23	0.93x	yes	Exit EV/EBITDA: 13.7x / 15.7x / 17.7x (bear / base = today's held flat / bull), 5yr
Relative Valuation	Relative	$60.86	1.31x	yes	P/E 18x (static sector reference · 2026-04), scenarios: 15.2x / 18.0x / 20.8x (bear / base = reference held flat / bull), EV/EBITDA 12x
Simple DDM	Growth	—	—	no	—
Two-Stage DDM	Growth	—	—	no	—
Simple Excess Return	Asset	$41.38	1.93x	yes	BV/sh $11.32, ROE (TTM) 33.8%, ke 9.3%
Two-Stage Excess Return	Asset	$83.73	0.95x	yes	5yr excess ROE then converge to ke=9.3%
Discounted Future Market Cap	Growth	$62.04	1.29x	yes	Rev $3.2B, growth 0% (input: historical growth; tapered), Terminal P/S: 2.9x / 3.5x / 4.0x (bear / base = today's held flat / bull, cap 8x)
Peter Lynch Fair Value	Relative	$45.48	1.75x	yes	EPS $3.79, growth 5% (input: historical EPS growth), PEG=4.53 (Overvalued)
Margin Trajectory	Growth	—	—	no	—
Earnings Power Value	Earnings	$52.04	1.53x	yes	Normalized EBIT (5y avg op income, one-time charges added back) $0.97B × (1−25%) / WACC 6.6% → EPV (no growth)
Residual Income	Asset	$64.18	1.24x	yes	BV $11.32 + 5yr PV of (ROE (TTM) 33.8% − Kₑ 9.3%) × BV; BV grows 8.8%/yr
Graham Number	Asset	$31.07	2.57x	yes	√(22.5 × EPS $3.79 × BVPS $11.32) — Graham's conservative floor
EV/EBITDA Relative	Relative	$52.60	1.52x	yes	EBITDA $1.03B × sector EV/EBITDA 12.0x
FCF Yield	Earnings	$8.98	8.88x	yes	FCF $575.2M / Kₑ 9.3% — zero-growth perpetuity
SBC-Adj FCF Yield	Earnings	—	—	no	—
Ben Graham Formula	Earnings	$56.23	1.42x	yes	EPS $3.79 × (8.5 + 2×4.6%) × (4.4 / 5.3%)
ROIC-Justified P/B	Asset	$4.79	16.65x	yes	BV $11.32 × (ROIC 2.8% / WACC 6.6%)
P/Sales Sector	Relative	$57.59	1.39x	yes	Revenue $3.22B × sector P/S 2.5x
PEG Fair Value	Relative	$26.16	3.05x	yes	EPS $3.79 × (PEG 1.5 × growth 4.6% (input: historical EPS growth)) → PE 6.9x
Earnings Yield	Earnings	$40.97	1.95x	yes	EPS $3.79 / required return 9.3% (Rf 4.3% + ERP 5.0%)
Funds From Operations Multiple	Relative	—	—	no	—
Clinical Phase NPV	Growth	—	—	no	—
Merton	Asset	—	—	no	—
V5 Mechanical	—	—	—	no	—

Solvency

Field	Value
Net debt	$5.0b
Net debt / NOPAT (after-tax)	7.07x
Net debt / operating income (pre-tax)	5.30x
Interest coverage	3.7x
Share count CAGR (buyback)	-3.9%
Burning cash	no

Bullet Takeaways

• The counterintuitive read: at about 16x company-wide operating income the price sits below what even a 5%-a-year decline in operating profit would warrant, yet the business is growing. The market is pricing in contraction at the largest, highest-margin deathcare operator.
• Return on equity is about 33.8% on a 30.1% operating margin, with a roughly $16.8 billion preneed revenue backlog that is not on the balance sheet. The franchise economics are far better than the multiple implies.
• The offset is leverage and a soft funeral-volume line: net debt about 6.9x operating income with interest coverage of 3.8x, and core funeral volumes declined even as the cemetery business grew.

Bull Case

The surprising finding is the mismatch between the franchise quality and the multiple. Service Corporation International is the largest deathcare provider in North America, it earns a 33.8% return on equity and a 30.1% operating margin, and yet at roughly 16x operating income the price sits below what even a 5%-a-year decline in operating profit would warrant. The market is pricing this high-return, recession-resistant business as if it were shrinking, when it is not. That is the metric that does not fit the obvious narrative: a multiple that implies decay on a business with software-like returns and a demographic tailwind.

The structural advantage is scale plus a contracted future-revenue backlog that the balance sheet does not show. The FY2025 10-K reports a preneed revenue backlog of $16.81 billion, up each of the last several years, and explains that as "preneed backlog grows from the development of our sales organization, the backlog also realizes scale benefits from the ability to grow trust portfolios" and from a "preferred preneed insurance provider agreement," with scale enabling "cost efficiencies through purchasing power and utilizing economies of" scale (accession 0001628280-26-007695). A $16.8 billion book of pre-sold funeral and cemetery services, off the balance sheet, is years of revenue already locked in, and the demographic wave is just arriving: the same filing notes Baby Boomers "are beginning to positively affect the growth of our preneed funeral" sales (accession 0001628280-26-007695).

The recent quarter shows the engine working where it matters most. First-quarter 2026 revenue rose 2.1% to $1.10 billion, comparable cemetery preneed sales production increased 10%, and cemetery revenue rose about 7% with margin expanding roughly 120 basis points to about 33% (web research). Cemetery is the higher-margin, more controllable segment, and it is accelerating. Management reaffirmed full-year 2026 EPS guidance of $4.05 to $4.35 and returned $190 million to shareholders in the quarter, while the share count shrinks about 3.9% a year (web research). A dominant, high-return operator with a growing pre-sold backlog, an arriving demographic tailwind, and a disciplined buyback, priced as if it will decline, is the value setup the static frames understate.

Bear Case

The sector cycle for deathcare turns on volume and mix, and both are working against the funeral business right now. The first quarter showed comparable core funeral revenue fall about $18 million with core services down 6.6%, driving a roughly $23 million drop in funeral gross profit and a 300 basis-point margin contraction (web research). The structural driver is the long shift from traditional burial toward cremation, which carries a lower average revenue per service. As more families choose cremation, the funeral segment's revenue per case erodes, and a deathcare company cannot grow volume to offset it because the number of deaths is demographically fixed in the near term. The cemetery strength is offsetting the funeral weakness today, but a business where the larger, lower-margin segment is in volume decline is not the clean growth story the low multiple's bull interpretation implies.

Leverage is the financial amplifier. Net debt is about 6.9x trailing operating income with interest coverage of only 3.8x, and book value per share is just $11.32 against a $72.63 price (June 28, 2026), so the equity is thin relative to the debt. SCI funds acquisitions and buybacks with that leverage, which works while cash flow is steady but leaves limited room if funeral volumes weaken further or trust-investment returns disappoint. The preneed backlog the bull case prizes is itself partly dependent on trust-fund investment performance, and the 10-K notes those trust investments are valued on "quoted market prices, observable inputs such as interest rates or yield curves, and appraisals" (accession 0001628280-26-007695), so a market downturn can reduce the value realized from the backlog.

The valuation methods are more sober than the single inversion bound suggests, and they explain the tension. While the inversion frames the price as below a decline scenario, the per-method marks mostly sit below the current price: DCF perpetual growth at $40, the relative method at $61, earnings-power value at $55, the Graham number at $31, and FCF yield at just $9, with a blended mark of about $53 against the $72.63 quote. Several methods reach the price only by extrapolating growth the funeral data does not support. Return on invested capital is only 2.8%, well below the high return on equity, which says the equity returns lean on leverage rather than capital efficiency. The price is reasonable for a steady compounder, but it assumes cemetery strength keeps outrunning funeral decline and that the leverage stays comfortable, and the static frames near $40 to $61 are where it gravitates if either assumption slips.

Valuation

The price is read on a whole-company basis against operating income. At roughly 16x company-wide operating income the inversion is a bound rather than a solved rate: the multiple is low enough that the price sits below what even a 5%-a-year operating-profit decline would warrant, computed at a 7% cost of capital. The near-term pace is within SCI's own record, so the implied assumption is within range, and notably it is an assumption of mild decline, which the growing cemetery business contradicts.

The X-ray is mixed, which is why no single family cleanly reaches the price. The growth and asset methods that credit the high return on equity reach or approach the price: two-stage excess return $84, the DCF exit-multiple $81, residual income $64. But the methods anchored on current earnings sit below it: DCF perpetual growth $40, the relative method $61, earnings-power value $55, earnings yield $41, and the Graham number $31. The blended mark is about $53. The wide gap between the blended $53 and the FV-range $118-plus captures how much the answer depends on whether you weight current funeral softness or the forward cemetery-and-backlog strength.

The honest read is that SCI is a dominant, high-return, recession-resistant franchise whose price embeds mild decline while the cemetery segment and demographic tailwind argue for growth. The variable that settles it is segment mix: if cemetery preneed and the Baby Boomer wave keep outrunning the cremation-driven funeral volume decline, the forward methods near $118 to $182 are credible; if funeral volume weakness spreads, the current-earnings marks near $40 to $61 are the floor the leverage points toward.

Catalysts

The segment divergence is the defining catalyst. First-quarter 2026 revenue rose 2.1% to $1.10 billion, with comparable cemetery preneed sales production up 10% and cemetery margin expanding about 120 basis points to roughly 33%, while comparable core funeral revenue fell about $18 million and core services declined 6.6%, contracting funeral margin by about 300 basis points (web research). Each quarter's cemetery-versus-funeral trend is the readout on whether the high-margin segment keeps offsetting funeral softness.

The preneed backlog and demographics are the longer-arc catalyst. The preneed revenue backlog reached $16.81 billion, and the 10-K notes Baby Boomers are "beginning to positively affect the growth of our preneed funeral" sales (accession 0001628280-26-007695). Growth in preneed production builds the future revenue base, so the preneed sales trend is the leading indicator of the next several years.

The capital-return and guidance catalysts round it out. SCI reaffirmed full-year 2026 EPS guidance of $4.05 to $4.35 and returned $190 million to shareholders in the quarter, continuing a steady buyback (web research). Watch comparable cemetery and funeral revenue and margin, preneed sales production, the cremation-mix shift in the funeral segment, trust-fund performance behind the backlog, and net debt against operating income.

Sources: Service Corporation International Q1 2026 results (sec.gov 8-K, finance.yahoo.com, quiverquant.com); SCI Q1 2026 earnings call and review (investing.com, marketbeat.com, harianbasis.co).

Peer Cohorts (Per Segment, With Filing Citations)

Core business (reported)

• AAL (American Airlines Group Inc.)
• (no filing in the citation store)
• AD (AD)
• (no filing in the citation store)
• ADT (ADT Inc.)
• (no filing in the citation store)
• AHCO (AdaptHealth Corp.)
• (no filing in the citation store)
• AIN (AIN)
• (no filing in the citation store)
• ALGT (ALLEGIANT TRAVEL COMPANY)
• (no filing in the citation store)
• ALK (ALASKA AIR GROUP, INC.)
• (no filing in the citation store)
• ALLE (Allegion plc)
• (no filing in the citation store)

Methodology Note

• Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
• Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
• Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
• Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.