StoneMor: An Unusual Deathcare Company with a Lively Payout

August 26, 2009
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image StoneMor Partners L.P. (NASDAQ: STON) is an intriguing and in fact unique company: the only publicly-traded funeral services company structured as a partnership. StoneMor owns and operates cemeteries and funeral homes in the U.S. and Puerto Rico. Its at-need (i.e., at death) and increasingly popular pre-need products include the usual burial lots, lawn and mausoleum crypts, burial vaults, cremation niches, caskets and memorials. But also uniquely, StoneMor has begun evaluating demand for pre-need pet memorialization and cremation; it already operate pet cemeteries.

Even in the middle of the recession, U.S. pet owners spent an estimated $35 billion on pet-related expenditures last year, and StoneMor finds that these owners are not only seeking guidance on memorializing their pets but want to do it before they need to. Makes sense. (That’s the beauty of capitalism: Where there’s a, ahem, niche, someone will find a way to fill it.)

StoneMor’s simple but effective operating strategy is to make smart acquisitions, improve on the new properties with its pre-need program and install and service its products speedily. The third quarter was all good news. It was the third consecutive quarter of revenue growth in excess of 17%, primarily due to StoneMor’s December 2007 acquisition of 45 cemeteries and 30 funeral homes, which resulted in a 30% increase in contracts. Revenue was up 29% year over year to $45.7 million and operating profit jumped 43% to $3.6 million. Income swung to a gain of $335,000 from last year’s $7,000 loss and distributable free cash flow almost doubled to $9.5 million.

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Pre-need pet memorialization isn’t the only iron StoneMor has in the fire. It’s also revamping its many websites to allow customers to make their cemetery service and merchandise purchases on-line. And why not? The company increased its distribution for the second straight quarter, to 55 cents, which makes for a yield of 14.6% at yesterday’s close of $15. It’s a generous distribution, but operating cash flows were in excess of distributions for the first nine months of 2008 and 2007, so the company appears able to back up its generosity for the time being. StoneMor might strike you as deserving of further due diligence.

Article From: Rightside Advisors

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