Park Lawn Corp.
(PLC-T) C$36.92
Q3/21 Preview: Comps See Elevated Volumes from Delta Variant Event
PLC will report its Q3/21 results after market close on November 11. Conference call: 9.30 a.m. ET on November 12 (888)-506-0062 (ID: 622285).
Impact: NEUTRAL
We forecast 7.9% y/y growth in Q3/21 revenue to $86.6mm and EBITDA of $21.3mm (consensus: $22.0mm), reflecting ~3% organic growth and an ~10% contribution from recent acquisitions, offset by an ~5% negative F/X headwind. However, following stronger-than-expected results from Service Corp. International (SCI-N; not covered) and Carriage Services (CSV-N; not covered), we believe that PLC has the potential to benefit from elevated death rates related to the spread of the Delta variant.
Industry-leader SCI posted 3% y/y funeral volume growth, despite a very strong +19% y/y growth in Q3/20. Recall, during its Q2/21 earnings call, SCI forecast a y/y decrease in volumes in H2/21, reflecting the normalization of COVID-19 deaths being seen at that time; however, as the incidence of the Delta variant increased in late- August (continuing into October), SCI saw a significant increase in volumes. CSV also posted strong results, with y/y funeral volume growth of 12.9%, ~60% of which was driven by Delta-variant-related deaths and the rest from market-share wins. These volume trends are consistent with the U.S. CDC data on excess deaths, which shows that the death rate increased beyond previous expectations in September (Exhibit 2). Looking forward, SCI and CSV expect good results in Q4/21 alongside Delta. However, SCI reiterated that it expects COVID-19 to have a modest negative pull-forward effect on revenues in 2022, with a return to growth in 2023 (aging baby- boom demographics).
M&A update: Alongside Q3/21 results, SCI and CSV stated that they are planning to be more active with acquisitions, whereas over the last few quarters, PLC was effectively the only active acquirer. SCI indicated that it was seeing multiples in the 8.0x-9.0x range, slightly higher than the 6.0x-8.0x multiples that PLC has historically targeted.
TD Investment Conclusion
We are reiterating our BUY recommendation and slightly increasing our target price to $43.00, reflecting our revised estimates. 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.