The Second Largest Funeral Corporation in the United States has received a lower credit rating from Morningstar. Stewart Enterprises International STEI, like many corporations simply has too much debt for a dying death care and Funeral Industry.
Secular trends limit opportunities for growth in the death-care industry. First, medical advances are extending life spans. As a result, the Census Bureau estimates that the number of deaths will increase just 1% annually.
Further, cremation has become increasingly popular, with cremation rates rising from 32% in 2000 to 42% today. While death-care companies do generate revenue from cremations, it is much lower than traditional interment. As a result of these factors, we foresee very limited growth for the death-care industry and doubt that Stewart will be able to buck this trend.
Morningstar is initiating credit coverage of Stewart Enterprises STEI with an issuer rating of BB. We think a combination of high leverage, negative long-term secular trends, and investment risk makes the firm’s debt a dicey proposition.
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