Is StoneMor Partners L.P. Destined for Greatness?

Let's see what the numbers say about StoneMor.

Apr 5, 2014 at 7:30AM

Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does StoneMor Partners L.P. (NYSE:STON) fit the bill? Let's take a look at what its recent results tell us about its potential for future gains.

What we're looking for
The graphs you're about to see tell StoneMor's story, and we'll be grading the quality of that story in several ways:

  • Growth: Are profits, margins, and free cash flow all increasing?
  • Valuation: Is share price growing in line with earnings per share?
  • Opportunities: Is return on equity increasing while debt to equity declines?
  • Dividends: Are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let's take a look at StoneMor's key statistics:

STON Total Return Price Chart

STON Total Return Price data. Source: YCharts.

Passing Criteria

3-Year* Change

Grade

Revenue growth > 30%

25%

Fail

Improving profit margin

(957.5%)

Fail

Free cash flow growth > Net income growth

420.2% vs. (1,215.2%)

Pass

Improving EPS

(1363.5%)

Fail

Stock growth (+ 15%) < EPS growth

11.1% vs. (1,363.5%)

Fail

Source: YCharts. *Period begins at end of Q4 2010.

STON Return on Equity (TTM) Chart

STON Return on Equity (TTM) data. Source: YCharts.

Passing Criteria

3-Year* Change

Grade

Improving return on equity

(1,229.9%)

Fail

Declining debt to equity

32% 

Fail

Dividend growth > 25%

4.4%

Fail

Free cash flow payout ratio < 50%

233.2%

N/A (see below)

Source: YCharts. *Period begins at end of Q4 2010.

How we got here and where we're going
Things don't look good for StoneMor in its second go, as the cemetery and funeral home operator's lost two of the passing grades earned in its prior assessment to finish with only one out of eight possible passing grades. StoneMor fell only a little short of passing on revenue growth, but the real problem appears to lie in the company's dwindling bottom line, which has hurt it on multiple fronts today. The company's dividend payouts, which are required to remain elevated due to its master limited partnership structure, have exceeded free cash flow levels over the past several years, but MLP stocks earn a special exemption from this metric. Going forward, will StoneMor be able to restore its earnings, or will investors find their gains planted six feet firmly under the ground?

StoneMor posted better-than-expected revenue and earnings per share for its fourth quarter, a strength primarily driven by contributions from acquisitions made in 2012 and 2013. StoneMor completed two acquisitions -- Seawinds Funeral Homes in Florida and Forest Lawn Cemetery in Richmond -- last year, part of its ongoing commitment to broaden its holdings of funeral homes and cemeteries near medium-size cities. StoneMor's arrangement with the Archdiocese of Philadelphia should also help it to boost revenue growth over the next few quarters.

StoneMor also issued $175 million worth of debt last year that's due in 2021, which should result in interest savings of about $1.6 million per year. It also continues to tap low-cost funding from the capital markets, as it recently offered another 2,000,000 common units for limited partner interest (essentially shares, MLP style) at a price of $24.45 per unit. The company currently boasts a backlog of up to $482.6 million, an amount equal to about two years of revenue.

Fool contributor Mark Lin notes that the funeral industry growth has been rather, um, motionless over the past decade, as the number of deaths never fell by more than 3% nor rose more than 1.5% year over year during that time in the U.S. According to the Centers for Disease Control and Prevention and the Census Bureau, U.S. deaths are projected to grow by 1.5% annually into the future. Additionally, the proportion of Americans 60 or older is expected to increase from 18.5% to 25% of the populace by 2030. However, StoneMor's strongest competition continues to come from Service Corporation International (NYSE:SCI), which has a presence in more than 43 states. Service Corp.'s acquisition of Stewart Enterprises last year helped the company leverage better economies of scale and improve its purchasing power. Investors might also want to keep in mind that Service Corp.'s shares have quintupled in the past five years, compared to a far more modest double (and this happened by 2011) in StoneMor's stock:

SCI Chart

SCI data. Source: YCharts.

Despite (or perhaps because) of this rivalry, StoneMor recently inked definitive agreements with Service Corp. to acquire nine funeral homes, 12 cemeteries, and two crematories spread across Florida, Pennsylvania, North Carolina, and Virginia for a total of $53.8 million in cash. These cemeteries perform over 3,500 interments, and the funeral homes perform around 1,900 calls per year, which should give StoneMor's revenue growth a little boost. The combined cemetery inventories add up to nearly 76,000 developed spaces, 2,400 lawn crypts, 4,200 constructed mausoleum crypts, and 4,400 constructed niches, which are all unsold.

Putting the pieces together
Today, StoneMor has few of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy -- or to stay away from a stock that's going nowhere.

Three stocks to own for the rest of your life
As every savvy investor knows, Warren Buffett didn't make billions by betting on half-baked stocks. He isolated his best few ideas, bet big, and rode them to riches, hardly ever selling. You deserve the same. That's why our CEO, legendary investor Tom Gardner, has permitted us to reveal "The Motley Fool's 3 Stocks to Own Forever." These picks are free today! Just click here now to uncover the three companies we love. 

Alex Planes has no position in any stocks mentioned. The Motley Fool recommends StoneMor Partners. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers