Project Trinity And New Partnership Will Drive Future Efficiency Gains

Key Takeaways

• Strategic partnerships and supply chain enhancements are set to boost financial flexibility, driving potential revenue growth and improved net margins.
  
• Improved capital allocation and technological upgrades are likely to reduce costs and increase earnings per share through enhanced efficiencies.
  
• Declines in funeral service volumes and increased project costs could challenge Carriage Services' revenue consistency and profitability in the near term.

Catalysts

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

• Carriage Services is planning to leverage its new national partnership with Express Funeral Funding for insurance assignments, which is expected to enhance financial flexibility and potentially increase sales, impacting revenue positively over the coming quarters.
  
• The introduction of a new earned core line and expansion of supply chain strategies are anticipated to create efficiencies and drive higher margins in the future, indicating potential improvements in net margins.
  
• The company's progressive reduction of its leverage ratio through disciplined capital allocation and debt repayments is expected to lower interest expenses, which will positively impact earnings per share (EPS).
  
• Project Trinity, a new ERP and customer experience platform, is expected to be fully implemented in 2025, resulting in long-term overhead efficiencies and potentially boosting net margins and earnings.
  
• Plans to return to growth mode, with divestiture proceeds being reinvested into high-quality acquisitions, indicate a strategic focus on increasing revenue and expanding market share, which could positively impact overall financial growth.

Carriage Services Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Carriage Services's revenue will grow by 1.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.0% today to 16.0% in 3 years time.
• Analysts expect earnings to reach $68.2 million (and earnings per share of $4.19) by about March 2028, up from $32.5 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 16.3x on those 2028 earnings, down from 18.8x today. This future PE is lower than the current PE for the US Consumer Services industry at 18.9x.
• Analysts expect the number of shares outstanding to grow by 3.19% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.5%, as per the Simply Wall St company report.

Carriage Services Future Earnings Per Share Growth

Risks

• Carriage Services experienced a 1.1% decrease in quarterly revenue, primarily due to a 7.3% decline in funeral service volumes, which could pressure future revenue consistency.
  
• The company reported a decrease in adjusted consolidated EBITDA for the fourth quarter by 9.6%, driven by the reduced revenue in its funeral segment and increased investment in its Trinity system, impacting overall earnings.
  
• Cash provided by operating activities decreased by $4.4 million in the fourth quarter compared to the prior year, which could affect the company’s ability to generate cash for reinvestment or debt reduction.
  
• The company anticipates continued elevated overhead costs in 2025, particularly relating to the implementation of Project Trinity, which could temporarily squeeze net margins.
  
• While projecting future growth, the company's revenue guidance for 2025 assumes low single-digit growth, indicating potential caution or uncertainty about achieving strong organic revenue growth.

Valuation

• The analysts have a consensus price target of $51.25 for Carriage Services based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $426.9 million, earnings will come to $68.2 million, and it would be trading on a PE ratio of 16.3x, assuming you use a discount rate of 8.5%.
  
• Given the current share price of $39.0, the analyst price target of $51.25 is 23.9% 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.