While the benefits it has enjoyed from a rising mortality rate brought on by the COVID-19 pandemic are “receding,” National Bank Financial analyst Zachary Evershed expects Park Lawn Corp. to continue to see market share gains.
Ahead of the release of its fourth-quarter 2021 results on Thursday, he raised his 2022 estimates for the Toronto-based funeral, cremation and cemetery provider, believing it took advantage of the inability of smaller operators to provide the required at-need services during the pandemic.
“Park Lawn (and other larger operators) was able to redirect traffic from closed locations to other businesses within its network, whereas single-location businesses were forced to turn families away,” said Mr. Evershed. “Relationships with families tend to be sticky, moving down from generation to generation, and so we expect the market share gains should continue to pay dividends over the long term. While a pull forward in volumes remains a point of concern, we believe the potential market share gains, as well as improving pricing, will provide a strong offset.”
For the quarter, he’s forecasting total revenue of $103.7-million, up 14.7 per cent year-over-year and above the consensus estimate on the Street of $100.6-milion. His adjusted earnings per share projection of 39 cents is an increase of 10.3 per cent and also tops the consensus (35 cents).
“Both main public peers reported respectable organic growth numbers in the fourth quarter despite C-19 deaths declining 24.9 per cent year-over-year in the U.S. in Q4, and a simple adjustment of each company’s segmented comparable growth to match PLC’s funeral home and cemetery breakdown might suggest the company is on track for 7-per-cent organic growth in the fourth quarter,” he said. " However, when weighted for Park Lawn’s geographic presence (as measured by the number of cemeteries, funeral homes, or both in a State), our analysis indicates that the year-over-year decline in COVID-19 deaths addressable by the company is 50 per cent greater than in the country as a whole. We therefore reduce our organic growth forecast to 1.4 per cent in Q4, down from our previous call, but still bullish vs. the Street.”
Emphasizing “size matters,” Mr. Evershed raised his target for Park Lawn shares by $1 to $45.50, keeping an “outperform” recommendation. The average on the Street is $46.92.
“Looking ahead, a common concern remains the potential pull-forward effect on deaths as we model 2022 and 2023,” he said. “We believe a degree of caution is warranted, but highlight the importance of pricing gains as the industry laps the difficult volume comp period. We also believe PLC should continue gaining market share, won from smaller competitors that were unable to provide sufficient service levels during the pandemic. By contrast, Park Lawn was able to flex its robust footprint, referring inquiries to other location and keeping the sale. This will likely have non-negligible impacts down the line, as death care business is often sticky within a family.”