Service International (SCI)

Funeral services company Service International (NYSE:SCI) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 4.4% year on year to $1.06 billion. Its non-GAAP profit of $0.87 per share was 4.9% above analysts’ consensus estimates.

Company Overview

Founded in 1962, Service International (NYSE: SCI) is a leading provider of death care products and services in North America.

Some consumer discretionary companies don’t fall neatly into a category because their products or services are unique. Although their offerings may be niche, these companies have often found more efficient or technology-enabled ways of doing or selling something that has existed for a while. Technology can be a double-edged sword, though, as it may lower the barriers to entry for new competitors and allow them to do serve customers better.

Service International's primary competitors include Carriage Services (NYSE:CSV), Park Lawn (TSX:PLC), and Matthews International (NASDAQ:MATW).

A company’s long-term sales performance can indicate its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, Service International’s sales grew at a sluggish 4.8% compounded annual growth rate over the last five years. This fell short of our benchmark for the consumer discretionary sector and is a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or trend. Service International’s recent performance shows its demand has slowed as its annualized revenue growth of 2.7% over the last two years was below its five-year trend.

We can dig further into the company’s revenue dynamics by analyzing its number of funeral services performed, which reached 84,636 in the latest quarter. Over the last two years, Service International’s funeral services performed were flat. Because this number is lower than its revenue growth during the same period, we can see the company’s monetization has risen.

This quarter, Service International reported modest year-on-year revenue growth of 4.4% but beat Wall Street’s estimates by 1.5%.

Looking ahead, sell-side analysts expect revenue to grow 2.9% over the next 12 months, similar to its two-year rate. This projection is underwhelming and indicates its newer products and services will not lead to better top-line performance yet.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Service International’s operating margin might fluctuated slightly over the last 12 months but has remained more or less the same, averaging 22.2% over the last two years. This profitability was elite for a consumer discretionary business thanks to its efficient cost structure and economies of scale.

This quarter, Service International generated an operating margin profit margin of 21.4%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Service International’s EPS grew at an unimpressive 9.5% compounded annual growth rate over the last five years. This performance was better than its flat revenue but doesn’t tell us much about its business quality because its operating margin didn’t improve.

In Q3, Service International reported adjusted EPS of $0.87, up from $0.79 in the same quarter last year. This print beat analysts’ estimates by 4.9%. Over the next 12 months, Wall Street expects Service International’s full-year EPS of $3.77 to grow 9.8%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Service International has shown impressive cash profitability, giving it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 14.2% over the last two years, better than the broader consumer discretionary sector.

Service International’s free cash flow clocked in at $150.7 million in Q3, equivalent to a 14.2% margin. The company’s cash profitability regressed as it was 1.3 percentage points lower than in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Service International historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 14.6%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Service International’s ROIC averaged 3.8 percentage point decreases each year. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Service International reported $241.3 million of cash and $5.03 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.28 billion of EBITDA over the last 12 months, we view Service International’s 3.8× net-debt-to-EBITDA ratio as safe. We also see its $123.1 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was encouraging to see Service International beat analysts’ revenue expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. Zooming out, we think this was a solid quarter. The stock traded up 1.4% to $81.25 immediately after reporting.

Updated: December 4, 2025 at 9:15 PM EST

Before investing in or passing on Service International, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

Service International doesn’t pass our quality test. First off, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. On top of that, Service International’s number of funeral services performed has disappointed, and its weak EPS growth over the last five years shows it’s failed to produce meaningful profits for shareholders.

Service International’s P/E ratio based on the next 12 months is 18.6x. While this valuation is fair, the upside isn’t great compared to the potential downside. There are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $95.40 on the company (compared to the current share price of $76.02).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.