The corona virus affect particularly on the elderly is many who have the virus will die. If you try to find positives in that statement from a financial point of view you might look at funeral homes.
The news about funeral homes is that while many companies are independent there are large chains and we know the population is aging, which on the surface is a good thing. One of the big questions about the increased number of deaths is how do funeral companies make their money?
At every funeral home there is a large number of choices – from the basic pine box to the large open caskets. However with social distancing in affect and few attendees to the funeral, people are expected to request more pine boxes or lower cost funerals. Given part of the funeral is the reception, lower numbers mean lower revenues.
Funerals also make money from selling the funerals in advance. As people age, this is a good thing to look at and do, it makes it the entire process easier when someone dies. With many people at home both working and waiting to go back to work; and the ones working just going home, one can reasonably expect fewer funerals will be sold in advance.
In the article by David Berman he spoke to some funeral companies and the expected growth rate for the chains to buy the independents is effectively frozen. The large companies have to preserve their cash, while the independents are too busy to consider mergers.
The increase in deaths due to the virus will be offset by other deaths – fewer people dying from motor vehicles for there is less vehicles on the road. The project 240,000 deaths is less than 9% of the normal deaths in a year.
All the big chain funeral companies such as Service Corp International and Hillenbrand stocks are down similar to most, they should begin to climb towards their highs because the population is aging.
Linking to dividend paying stocks, the virus has changed many business models and that is both a good and bad thing. As long as you can see both sides with a bias towards the good thing, buying stocks for the longer term is a wonderful idea.
There are more questions than answers, till the next time – to raising questions.