Service Corporation International Harvard Case Solution & Analysis

Question 1

SCI’s strategy of growth by acquisition is appropriate for the business because of low growth in the industry where it operates in. The growth through acquisition is faster and less expensive as compared to the traditional methods. SCI operates in the industry where internal growth is much difficult.

Even though growth through acquisition requires paying huge money, and for that SCI has taken debt and issued equity, which affect the earning per share and dividend paid to shareholders, how ever SCI’s EPS and dividend paid has increased in the last decade. Due to the major consolidators increasing market share in North America, the cost of acquisition might increase due to the resistance of remaining operators and for that purpose, investing overseas is a good decision, how ever SCI is unable to implement its cluster strategies in these countries as it would not yield the same amount of benefits like it does in the US.

The profitability of SCI’s growth strategy has grown in the cemetery segment while it has stayed almost same in funeral homes and financial services. The total net income has shown growth as shown in Exhibit 2, and the EPS has grown with the average of 14.5% over last six years. EPS with the internal growth strategy will grow by 12 %(Refer to Excel).

After acquiring the overseas companies,their performance has improved.There has been a 40% increase in the operating profit of Australian companies and 22% in the first six months in UK under the ownership of SCI, mainly due to the increase in revenue.

According to one of Wall street’s analysts the share price of SCI can increase up to $41, which is almost one third higher than the current price.This shows that the value of shareholders will increase.

Service Corporation International Case Solution

Question 2

The current financing strategy for SCI is in line with the objectives of the company.The growth through acquisition needs high level of funds, and in order to raise the funds, the long term debt and equity are most of the time main source.

Future acquisitions should be funded through long term debts and equity, however the level of interest paid has increased by 25.5% in the previous year, still SCI has the interest coverage of 3.61, and it is second highest among the four competitors. The long term debt and total capital ratio of 53% is not very high as compared to the two competitors of SCI and the growth projection of EPS for next five years is 20%.

SCI has favorable cash flows from its existing business and it can afford to change its capital structure and increase the leverage as debt is the cheapest form of finance, however,losing the BBB ratings means increase in cost of debt and it can affect SCI’s return on investment and will make the acquisition’s targets less attractive. The best way for SCI is not to force the acquisitions and burden its financial position and wait for the right target at the right time.

The increase in equity by issuing shares to finance the acquisitions will also dilute the EPS of SCI, and this would decrease the dividend per share however,through the right acquisitions that actually make the difference in net income by performing and giving good return, it will counter the effects and will help in increasing share price, which will benefit the existing shareholders...........................

This is just a sample partial case solution. Please place the order on the website to order your own originally done case solution.

Other Similar Case Solutions like

Service Corporation International

Share This