- Although SCI’s stock is trading around $31.00 per share in July 1995, analysts are predicting it could be $41.00 or more within a year or two. Would you buy SCI’s stock at this time?Why or why not?
Service Corporation International(SCI) operates in several countries such as Australia, United Kingdomand the United States.The company is well-diversified which reduce its overall risk. The company is in the growing phase in the Australian and United Kingdom markets. In the last two years the revenue and operating margin of the company in Australian markets have increased by 13% and 23% respectively whilerevenue and operating margin of the company in United Kingdom markets have increased by 6% and 22% respectively.
Along with this, the financials of the company reveal the overall growth of the company.The increment in revenue, gross profit, operating income and net income of the company are 8%, 11%, 12% and 13% respectively in 2 years.Moreover, the current assets are also in increasing, however, the non-current assets are decreasing which may jeopardize the company in the long-run.However, the overall industry shows growth of less than 1% but the financials of the company show an attractive growth.Also, the company is ranked on topamong the competitors.
After analyzing the above data, we can conclude that the company may achieve the targeted share price of $41 in one or two years. Therefore, I will purchase the share of the company because in one or two years’ time I can earn a profit of $10 from the share of the company.Moreover., on the financial grounds, SCI is better than the competitors which causes attraction.
Service Corporation International Harvard Case Solution & Analysis
| Growth | ||||
| 1992 | 1993 | 1994 | Increment | |
| Revenues | 16% | 24% | 8% | |
| Gross profit | 19% | 30% | 11% | |
| Income from operations | 20% | 32% | 12% | |
| Net income | 17% | 30% | 13% | |
| Earnings per share | 1.13 | 1.21 | 1.51 | |
| Current assets | 21% | 89% | 69% | |
| Non-Current assets | 43% | 36% | -8% | |
| Current liabilities | 1% | 351% | 350% | |
| Non-Current liabilities | 45% | 42% | -3% | |
| P/E ratio | 0.89 | 0.84 | 0.72 | |
| Results of International Acquisitions | |||
| Australia | FY1993 | FY1994 | Growth 93-94 |
| Revenues | $31.90 | $36.10 | 13% |
| Expenses | 23.7 | 24.7 | 4% |
| Operating profits | 8.2 | 11.5 | 40% |
| Operating margin | 26% | 32% | 23% |
| United Kingdom | 1st Half 1994 | 1st Half 1995 | Growth 94-95 |
| Revenues | $68.70 | $73.00 | 6% |
| Expenses | 52.0 | 52.7 | 1% |
| Operating profits | 16.7 | 20.3 | 22% |
| Operating margin | 24% | 28% | 22% |
- How does SCI make money in the death care industry? Is this strategy sustainable?
In the United States,the death rate is 8.8 per 1000 people hence we can conclude that the growth rate of death care industry is very low and it is predicted that it will remain lower than 1% till 2010.Deathcare normally consists of two segments funeral homes and cemeteries. SCI mainly provides funeral home services. In the United States, there are approximately 22500 funeral homes each of which handles approximately 100 services per day.
To generate effective revenues in this low growth market,SCI adopts Cluster Strategy.At the time of high demand,funeral homesrequire a funeral director, back office and reception staff, embalmer, funeral supplies and two or more hearses. The cost incurred in ascertaining this staff is considered as the fixed cost...........
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