Jehoshaphat Research has argued U.S. funeral chain Service Corp International (SCI) will have to cut rates for its services by 30% due to online price transparency. The short seller believes this and an expected fall in demand for funeral services will result in big losses for SCI.
Jehoshaphat said in a report Wednesday that SCI charges much more than other funeral brands for its services and that this has is a result of customers not being able to easily compare prices. However, as online price transparency becomes ubiquitous in the U.S., SCI’s ‘‘high-fixed-cost, heavily leveraged’’ business stands to suffer a 30% decline in funeral pricing, the short seller contended.
The emergence of online price transparency in Australia and the U.K. has upended high-priced funeral home chains in these countries, the short outfit highlighted, presenting data on price cuts by U.K. funeral home Dignity in recent years.
The expected cut in prices will impact SCI’s ability to pay dividends, said Jehoshaphat, who also believes the company’s earnings per share will turn negative within the next 18 months or sooner. The report also argued SCI will be hit by reduced funeral volumes as the mortality rate is poised to drop in the next years after a surge during the coronavirus pandemic.
These factors are ‘‘catastrophic’’ for SCI, contended Jehoshaphat, which said the stock could drop by as much as 80%. SCI shares were slightly up at $65.72 each as of 11 a.m. Wednesday in New York.