Raymond James reaffirms Service Corp. Intl. stock rating and target

Raymond James maintained an Outperform rating on Service Corp. Intl. (SCI) with an $85 price target, citing an expected $0.16 EPS benefit in 2025 from the company's insurance transition, ultimately projecting a total EPS benefit of $0.66. While SCI reported Q1 2025 EPS of $0.96, exceeding forecasts, and affirmed its full-year EPS guidance of $3.70-$4.00, the stock declined 4.88% in after-hours trading, potentially due to anticipated flat funeral volumes; analysts are closely monitoring the insurance transition and its impact on future sales.

Analysis

Raymond James has reiterated an Outperform rating on Service Corp. Intl. (SCI) with an $85.00 price target, citing an upwardly revised total earnings per share (EPS) benefit of $0.66 from its insurance transition, up from a previous estimate of $0.49, with an anticipated $0.16 contribution to 2025 EPS. This revision stems from updated calculations regarding salesperson commissions. Financially, SCI demonstrates stability, having maintained dividend payments for 21 consecutive years. The company reported strong Q1 2025 results, with adjusted EPS of $0.96 surpassing the $0.93 forecast, and revenue meeting expectations at $1.07 billion. Furthermore, SCI confirmed its full-year EPS guidance of $3.70 to $4.00, suggesting potential 9% year-over-year growth, and reported a significant $90 million increase in adjusted operating cash flow to $316 million. However, despite these positive metrics, SCI's stock declined 4.88% in after-hours trading, potentially influenced by projections of flat to slightly declining funeral volumes in 2025 and an InvestingPro analysis suggesting the stock, with a P/E ratio of 21.16, is trading above its Fair Value. The insurance transition's Q1 benefit was approximately $1.5 million, driven by an $8.4 million year-over-year increase in general agency commissions, partially offset by a $6.9 million decrease in recognized urn revenue, with a more substantial full-year impact expected in the latter half of the year. Analysts are closely monitoring this transition and SCI's strategic technology investments aimed at enhancing sales processes.

Key Decisions for Investors

• Investors should weigh the positive outlook from the insurance transition's EPS accretion, consistent dividend history, and strong cash flow against the current valuation, which InvestingPro suggests is above Fair Value, and potential near-term headwinds from flat funeral volumes.
• Monitor the realized financial benefits of the insurance transition in upcoming quarters, particularly in the second half of the year, as its successful execution is crucial to achieving the projected EPS growth and supporting the Outperform rating.
• Consider the potential for continued share price volatility due to market sensitivity to funeral volume trends and valuation concerns, despite the company's solid operational performance and confirmed growth guidance.