Park Lawn Corp T.PLC

TD

[retiredcf]

Have a $47.00 target. GLTA

Park Lawn Corp.

(PLC-T) C$31.63

Preview: M&A Robust but Possible Moderating of Pre-Need Sales Event

PLC reports Q2/22 results after market on August 11. Conference call: 9.30 a.m. ET, August 12 (888-506-0062; ID: 800347).

Impact: NEUTRAL

We forecast Q2/22 revenue growth of 17.2% y/y to $84.4mm and EBITDA of $20.8mm (consensus: $21.0mm), reflecting negative 2.5% organic growth (versus a strong comp) and a 20.9% contribution from M&A. Heading into the quarter, we highlight that publicly traded peers SCI and CSV both reported somewhat disappointing results (granted CSV's margins were significantly impacted by operational investments for long-term growth, versus broader market conditions). At a high level, at-need volumes appear to remain strong reflecting a continuation of excess deaths despite reduced COVID-related fatalities and average price per service metrics continue to climb. However, there appears to be a moderation of pre-need sales activity as well as higher cost inflation related to corporate wages, labour for maintenance and third-party vendor costs (including a rise in surcharges). Ultimately these inflationary costs are expected to be passed through to customers but may present a short-term headwind while pricing adjusts.

SCI noted that its at-need volumes are trending above its expectations but its pre-need cemetery/funeral sales are trending slightly below its previous expectations. SCI is speculating that the weaker-than-expected pre-need sales reflect: 1) consumers looking to reallocate spending to services/experiences alongside the economic reopening, 2) inflationary impacts which are causing some consumers to defer locking into death planning services, and 3) lingering impacts of COVID-related illness and vacations which are disrupting the sales process (i.e. customer and sales rep absenteeism). However, to be clear, pre-need sales remain well above 2019 levels; SCI's Q2/22 pre-need cemetery sales production was down 3% y/y but still 45% above Q2/19.

We have revised our estimates to include PLC's recent tuck-under acquisitions of Farris and Shackleford and tempered our near-term organic growth rates to reflect a softening of pre-need sales. Additionally, we have increased our operating cost assumptions slightly.

TD Investment Conclusion

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.

[bullterrier88]

Most analysts have targets of 40+.  Earnings will be interesting and will probably shed some light on the increase inflation has had on expenses.  It's been trading sideways between 31-34 for some time now.