Mortality Headwinds And Fixed Costs Will Pressure Results Yet Long-Term Demand Will Eventually Support Improvement

Catalysts

About Carriage Services

Carriage Services operates funeral homes and cemeteries that provide at need and pre need funeral and cemetery services to families across the United States.

What are the underlying business or industry changes driving this perspective?

• Although Carriage Services is seeing growth in insurance funded pre need funeral contracts and higher average revenue per contract, the business remains highly exposed to unpredictable mortality trends that can restrict call volumes and limit revenue growth even when pricing holds firm.
• Although the company is increasing average price per pre need interment right and expanding cemetery development projects, the timing gap between pre need sales and revenue recognition can delay the benefit of this backlog, which may constrain reported revenue and EBITDA growth in the near term.
• While the rollout of the Trinity system and other process upgrades aim to improve operating leverage and cost control, Carriage Services operates in a fixed cost model where any renewed pressure on volumes could compress margins and slow adjusted EPS expansion.
• Although demographic trends such as an aging population and stable cremation mix provide a supportive long term demand backdrop, rising competition in high cremation markets like Florida can pressure pricing and mix, which may weigh on revenue per contract and local profitability.
• While the acquisition pipeline is described as active and recent deals like McCammon open new markets, slower than expected transaction timing and careful valuation discipline reduce near term acquisition contribution to revenue, EBITDA and free cash flow compared with earlier expectations.

Assumptions

How have these above catalysts been quantified?

• This narrative explores a more pessimistic perspective on Carriage Services compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Carriage Services's revenue will grow by 6.0% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 10.5% today to 14.6% in 3 years time.
• The bearish analysts expect earnings to reach $72.5 million (and earnings per share of $4.24) by about August 2029, up from $43.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 12.6x on those 2029 earnings, down from 13.0x today. This future PE is lower than the current PE for the US Consumer Services industry at 14.5x.
• The bearish analysts expect the number of shares outstanding to decline by 0.3% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.6%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Mortality trends softened across much of the United States in the first half of 2026 and funeral volume at Carriage Services declined by 3.5% in Q2 and 4.7% for the first six months compared with last year, which highlights that a structurally lower or more volatile death rate over time could cap call volumes and limit revenue growth and earnings.
• The business model relies on a growing base of pre need cemetery and funeral contracts. However, a 5% increase in pre need cemetery sales production and a 17.3% increase in average interment right price in Q2 only produced flat cemetery revenue, which shows that the timing gap between sales and revenue recognition can suppress reported revenue and EBITDA and may keep net margins under pressure if this pattern persists.
• Carriage Services operates with a largely fixed cost base, and management linked lower margins primarily to negative volumes rather than mix. As a result, any prolonged period of soft funeral volume in key markets could compress EBITDA margin in the 31% to 31.5% range that management is targeting and reduce future earnings per share growth.
• Florida is described as the state with the most significant volume decline and has a high cremation mix with many direct cremation competitors. If competition in high cremation markets continues to increase, pricing and mix could come under pressure, which may weigh on revenue per contract, local profitability and overall net margins.
• The updated 2026 outlook reduced expected revenue by US$5m at the midpoint due mainly to slower than expected acquisitions, and management comments suggest ongoing valuation gaps with potential sellers. If acquisition activity continues to lag expectations over several years, inorganic growth could be limited and this may restrain long term revenue, EBITDA and earnings expansion compared with what some investors anticipate.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for Carriage Services is $46.0, which represents up to two standard deviations below the consensus price target of $56.0. This valuation is based on what can be assumed as the expectations of Carriage Services's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $65.0, and the most bearish reporting a price target of just $46.0.
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2029, revenues will be $497.2 million, earnings will come to $72.5 million, and it would be trading on a PE ratio of 12.6x, assuming you use a discount rate of 8.6%.
• Given the current share price of $35.87, the analyst price target of $46.0 is 22.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.