SCI

Publicly traded companies mentioned herein: Service Corp International (SCI)

Highlights

The presenter is short shares of Service Corp International (SCI), which operates funeral and cemetery businesses in the US and Canada. Shares have fallen ~33% to ~$35 in the wake of the COVID-19 fallout, yet he sees significant additional downside due to the market’s misunderstanding of a few specific dynamics. While many investors held onto the belief that funeral and cemetery businesses such as SCI should do well during a pandemic, the presenter argues that it is much more cyclical than the market realizes and that it has material exposure to the equity markets through its trust portfolio. The apparent misclassification of SCI as a staple has caused shares to trade at 12x – 14x EBITDA in recent years due to its strong performance during the extended bull market; while this has fallen to ~10x over the past month, the stock generally traded at an EBITDA multiple in the MSD – HSD range prior to 2017. In his view, the poor performance that he anticipates in the current climate could cause ~50% downside from current prices, if the EBITDA multiple reverts to ~8x.