PARK LAWN CORP.
Q3/F23 Preview: Potential CSV Deal Gets Buried
Our Conclusion
We expect PLC’s announcement to withdraw its offer to acquire Carriage
Services (CSV) to be interpreted positively by the Street. While the
potentially significant EPS accretion led us to support a merger, we believe
the majority of investors negatively viewed the combination due to pro forma
leverage and a lack of support for the likely Brookfield terms. Meanwhile, we
are reducing our Q3 estimates based on a lower mortality rate and a return
to traditional seasonality. Our price target moves to C$23.50 (C$29 prior) on
a 9x EV/EBITDA multiple (10.5x prior) to reflect a softer environment for
discretionary names. PLC’s valuation has become more compelling, and
M&A targets appear abundant and at reasonable multiples. Another few
quarters should see more clarity on improved industry conditions and a more
favourable time for the stock. PLC remains Neutral-rated.
Key Points
Potential CSV Deal Ends. PLC confirmed it has withdrawn its bid to acquire
CSV. We believe investors were hesitant on potential leverage (we estimate
4x). We expect PLC to focus on returning to tuck-in M&A and also various
organic growth projects, which were on display at its recent investor day.
Q3/23 Preview: U.S. mortalities were down ~7% Y/Y in Q3 QTD. We note
that figures are typically revised upward (Q2 was -1%). We continue to have
concerns about excess deaths from 2020-2022, and the impact for 2023-
2024. Furthermore, we believe pre-need sales could see declines from lower
consumer spending. As a result, we are revising down Q3 estimates. We
project funeral home revenue of $52MM and cemetery revenue of $33MM.
Our estimate, driven by acquisitions, is ~1% below consensus; our EBITDA
forecast matches consensus. Subsequent to Q3, PLC has completed two
deals which are expected to add $700MM in EBITDA at an estimated cost of
$5.1MM.