Park Lawn Corp.
(PLC-T) C$34.01
Q1/21 Preview: Elevated At-Need Demand Continued Through Q1 Event
Park Lawn is expected to report its Q1/21 results on May 13 after market close. Conference call: May 14, 9:30 a.m. ET (647-427-7450 ID: 7538966).
Impact: NEUTRAL
PLC management had previously indicated that it expected Q1/21 to see strong at-need volumes reflecting continued elevated mortality rates during the COVID-19 holiday wave. However, based on the very strong results reported by Carriage Services Inc. (CSV-N; not covered) on April 21, with revenue growth of 24.7% including strong at-need and pre-need sales, we believe PLC's results could be stronger than we had initially anticipated. CSV did note that volumes are now normalizing alongside the vaccine but that y/y revenue growth continues in April, given revenue/call is rapidly recovering alongside relaxed social gathering rules. Also, CSV indicated pre-need sales are very strong, with momentum expected to build across 2021. This combined with average price increases and market share gains has led CSV to modestly increase 2021 and 2022 guidance. Industry leader, Service Corporation (SCI-N; not covered), reports May 4.
We are raising our Q1/21 revenue forecast to $88.6mm, which implies y/ y growth of ~19.8%. The increase primarily reflects higher consolidated Q1/21 organic growth of ~18%, versus ~15% previously as well as higher growth from recent acquisitions, offset somewhat by the appreciation of the C$. The U.S. CDC data on excess deaths (Exhibit 2) remained elevated in Q1/21 with total U.S. deaths ~19% above expected levels (versus ~23% above expected levels in Q4/20). Commensurate with the stronger revenue, we have also increased our margin expectations and are modelling a Q1/21 adjusted EBITDA margin of 25.5%, versus 23.1% previously.
On the M&A front, several industry consolidators have spoken of the relative fatigue of smaller/independent players following the challenges of operating during COVID-19. In our view, this could lead to increased transaction activity near-term. Furthermore, we believe that PLC is becoming an increasingly attractive acquirer/ partner as it builds scale across the U.S.
TD Investment Conclusion
We are reiterating our BUY recommendation and $38.00 target price. We continue to view Park Lawn as a high-quality company in a recession-resistant business with a favourable industry backdrop (including demographic tailwinds) and ample opportunities/capacity to grow through M&A. We will revisit our target price and return following quarterly earnings.