Service Corp. Comes Back to Life

The period of mourning may be over at the world's largest funeral and cemetery operator. Throughout 2000, shares languished between 1.25 and 2. But this year, the stock has revived, rising to 4.55 on Mar. 28. John Ransom, an analyst at Raymond James & Associates, has upgraded his rating on the stock to a "strong buy" from a "market perform," with a price target of 6. The stock hit 40 in 1999--but then over-expansion and price competition began to hurt the company.

Ransom's bullish stance stems in part from management's efforts to reduce its debt load and increase cash flow per share. But there is another factor that has helped revive the stock: Service Corp. has been getting takeover nibbles from several groups, including two leveraged-buyout outfits and two major financial-service companies, says one money manager. Service Corp., as of the end of 2000, operated 3,611 funeral parlors, 569 cemeteries, and 200 crematoriums in 18 countries on five continents.

In a buyout, the company could be worth 7 to 8, says one investment banker. He says suitors are attracted by the company's strong cash-flow growth and real estate properties. Service Corp. has been selling some properties to pay off debt. Its goal, he says, is to slash debt of $3.3 billion, to $2.5 billion or $2 billion, by the end of 2002. Ransom projects cash flow of 44 cents a share in 2001 on revenues of $2.4 billion. Service declined comment on the buyout rumor.

The Citigroup CEO may be courting American Express. Oil-patch operator Stone could be getting bids. And a fresh flowering may loom at Service Corp.

By Gene G. Marcial

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