Premium Projects And Acquisitions Will Unlock Lasting Value

Key Takeaways

• Strategic acquisitions, high-end inventory projects, and pricing optimization are driving revenue growth, margin expansion, and higher operating leverage in premium markets.
  
• Technology upgrades and stable overhead costs are boosting operational efficiency and service consistency, supporting sustained margin and earnings improvement.
  
• Structural challenges in project execution, cost inflation, high debt, stagnant revenue, and risky reliance on acquisitions threaten future growth, profitability, and financial stability.

Catalysts

Provides funeral and cemetery services, and merchandise in the United States.

• Strong growth in pre-need funeral commission income, driven by the company's successful insurance pre-need strategy and increased consumer adoption of pre-arrangements, supports higher predictability of future revenue and improved cash flows.
  
• Completion of delayed high-end cemetery inventory projects is expected to unlock pent-up demand for premium cemetery products, boosting revenue growth and margin expansion in the second half of the year and into 2026.
  
• Resumption of strategic acquisitions in premium markets, combined with disciplined divestitures of underperforming, demographically declining properties, positions Carriage to accelerate top-line growth and drive higher operating leverage as more of the portfolio comprises high-margin assets.
  
• Ongoing implementation of pricing optimization, expanded premium personalization offerings, and focused cremation upsells are already raising average revenue per contract and are expected to further support margin improvement and sustain higher net earnings.
  
• Technology investments, especially in new ERP systems and streamlined core lines, are enhancing operational efficiency and service consistency, which, alongside stable overhead costs, should support EBITDA margin recovery and future earnings growth.

Carriage Services Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Carriage Services's revenue will grow by 3.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 12.7% today to 13.8% in 3 years time.
• Analysts expect earnings to reach $62.3 million (and earnings per share of $3.73) by about August 2028, up from $51.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.6x on those 2028 earnings, up from 14.6x today. This future PE is greater than the current PE for the US Consumer Services industry at 17.2x.
• Analysts expect the number of shares outstanding to grow by 3.22% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.47%, as per the Simply Wall St company report.

Carriage Services Future Earnings Per Share Growth

Risks

• Cemetery operating revenue growth was only 2.2% year-to-date, well below the long-term target of 10%–20%, with management attributing most of the weakness to delays in new construction projects; repeated or prolonged infrastructure and permit challenges could structurally limit top-line revenue growth and compress net margins if inventory issues persist.
  
• Both the Funeral and Cemetery segments experienced significant margin compression (funeral field EBITDA margin down 250bps, cemetery field EBITDA margin down 480bps), caused by inflationary pressures, higher salary and benefit expenses, and variable costs; continued secular cost inflation without offsetting pricing power or volume growth may erode future earnings and net margins.
  
• The company's leverage ratio remains high at 4.2x, even after debt reduction efforts, and $113 million remains drawn on its credit facility; long-term persistently high debt levels could increase vulnerability to rising interest rates, limit strategic flexibility, and lower net profit margins due to higher interest expenses.
  
• Revenue in core segments was essentially flat or slightly down in the quarter (e.g., total revenue flat, cemetery revenue down 0.6%), and growth optimism is heavily reliant on completing high-end cemetery projects and successful acquisitions; structural stagnation or delays in organic growth could restrain future revenue expansion and earnings potential.
  
• The company's ongoing divestiture of properties in declining demographic regions-and increasing reliance on acquiring premium assets in competitive markets-suggests exposure to long-term secular trends such as regional population declines and the risk of overpaying for acquisitions, both of which could negatively impact future revenue growth, operational leverage, and overall financial health.

Valuation

• The analysts have a consensus price target of $59.0 for Carriage Services based on their expectations of its future earnings growth, profit margins and other risk factors. 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 $55.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $450.6 million, earnings will come to $62.3 million, and it would be trading on a PE ratio of 20.6x, assuming you use a discount rate of 8.5%.
  
• Given the current share price of $47.94, the analyst price target of $59.0 is 18.7% 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.