Hook & thesis
Service Corporation International continues to behave like a high-quality, cash-generative operator in a defensive end-market. The company reported another quarter (07/01/2025 - 09/30/2025) of roughly $1.06 billion in revenue and generated $252.3 million of operating cash flow in the period. Management is returning capital via quarterly dividend increases (most recently declared 11/05/2025) and an expanded share repurchase authorization, which together create a clear catalyst pathway for the stock.
For patient traders who want exposure to a steady cash-flow story with explicit shareholder-return mechanics, SCI looks attractive around recent trading levels. My trade idea: take a long position in the $80-$86 area with a defined stop and two-tier upside targets. The bull case is straightforward - recurring demand, predictable margin/cash-cycle dynamics, and management commitment to buybacks and dividends - while the principal offset is a levered balance sheet that warrants position sizing discipline.
What the company does and why the market should care
Service Corporation International is a personal services company providing funeral and cemetery services across the United States and Canada. The business is made up of a funeral services segment (professional services, facilities, cremations, merchandise) and a cemetery segment (land, memorialization, perpetual care). The economics are a blend of volume, pricing for services and merchandise, and long-duration liabilities (preneed obligations and perpetual care), which makes cash flow visibility and capital allocation central to equity returns.
The market should care because SCI converts a large portion of revenue into cash. In the most recent quarter (07/01/2025 - 09/30/2025) SCI reported:
- Revenue: $1,058,096,000
- Operating income: $226,391,000
- Net income (attributable to parent): $117,473,000; diluted EPS $0.83
- Operating cash flow: $252,280,000
Across Q1-Q3 of fiscal 2025 the business has shown consistent quarter-to-quarter revenue near ~$1.06B and operating income in the $224M-$252M range, which supports the view that margins and cash conversion are reasonably stable in the current operating cycle.
Numbers that matter (selected data points)
- Quarter (Q3 FY2025, 07/01/2025 - 09/30/2025): Revenues $1.058B, Operating income $226.4M, Net income $117.5M, Diluted EPS $0.83.
- Operating cash flow (quarterly): Q1 FY2025 $311.1M, Q2 FY2025 $166.4M, Q3 FY2025 $252.3M - shows strong but variable cash generation tied to working capital and timing.
- Balance sheet snapshot at Q3 FY2025: Assets $18.36B, Equity $1.567B, Long-term debt $5.030B, Other noncurrent liabilities $11.013B.
- Interest expense (operating) in Q3 FY2025: $65.683M (quarterly), implying a meaningful annualized interest burden versus operating income.
- Shares outstanding (diluted average in Q3 FY2025): ~141.4 million shares.
- Dividend: most recent quarterly cash dividend declared 11/05/2025 was $0.34 per share (pay date 12/31/2025). The company has increased the quarterly payout several times year-over-year.
Valuation framing - rough, transparent, and actionable
The dataset does not provide an explicit market capitalization line, but we can approximate. Using the diluted average shares (141.424 million) and recent trading around the low-$80s to mid-$80s (prev close in the snapshot was $82.35; intraday prints in the quote range up to the high $80s), implied market cap is roughly $11.6 billion at $82 and about $12.4 billion at $88. Using a simple annualized EPS proxy (quarterly EPS of $0.83 x 4 = ~$3.32) yields a back-of-envelope P/E in the mid-20s (about 25x at $82). These are rough calculations but they frame the trade: SCI is not a deep-value multiple; it's being priced like a slower-growth, cash-yielding company with an active capital return program.
We cannot compute enterprise value precisely from the dataset (cash and exact market cap lines are not provided), so investors should treat the multiple work-up as directional. Compared with the company's historical operating profile (steady quarterlies and consistent free cash generation), the current implied multiple reflects both the benefit of defensive cash flow and the headwind of high leverage and interest expense.
Trade idea (actionable)
- Direction: Long SCI
- Entry zone: $80.00 - $86.00. Primary entry around $82 - $84 (recent trading cluster and prior close ~$82.35).
- Initial stop: $74.00 (roughly 9-10% below the entry zone; below near-term support from multi-month price action).
- Targets:
- Target 1 (near-term): $95.00 - take partial profits (about +12% from $85).
- Target 2 (aspirational): $110.00 - larger profit target if the company prints better-than-expected cash flow or accelerates buybacks (about +29% from $85).
- Position sizing & risk: Given substantial long-term debt (~$5.03B) and large other noncurrent liabilities (~$11.01B), keep position size moderate. A typical allocation would be no more than 2-4% of a diversified portfolio, or smaller for traders uncomfortable with balance-sheet leverage.
- Time horizon: Swing - 3 to 9 months (catalysts and repurchases typically play out over multiple quarters).
Catalysts to watch
- Continued dividend and buyback activity - management raised the dividend and expanded the repurchase authorization in 2025 (declarations 05/06/2025 and 11/05/2025 noted). Increased buybacks are an explicit near-term offset to share count and can lift EPS.
- Quarterly results that beat operating-margin or cash-flow expectations - the company has shown stable operating income ($224M - $252M in recent quarters) and upside on cash flow could re-rate the stock.
- Evidence of disciplined capital allocation - sustained share repurchases combined with measured M&A could drive multiple expansion if leverage is managed.
- Sector/peer flows into defensive, dividend-paying names during risk-off episodes could support price momentum.
Risks and counterarguments
These are the principal reasons this is not a 'set-and-forget' long without active monitoring.
- High leverage and sizable noncurrent liabilities: Long-term debt stands at roughly $5.03 billion and other noncurrent liabilities are about $11.01 billion at the most recent quarter (07/01/2025 - 09/30/2025). Interest expense in Q3 was $65.7 million, which is meaningful versus operating income. A material rise in rates or an operational shock could pressure free cash flow and limit buybacks/dividends.
- Cash-flow variability: Operating cash flow quarter-to-quarter has been volatile (Q1 FY2025 $311.1M, Q2 $166.4M, Q3 $252.3M). Working-capital timing, preneed funding fluctuations, or one-off items can compress free cash unexpectedly.
- Valuation is not a bargain: Using diluted shares and recent prices implies a mid-20s P/E on a simple annualized EPS proxy. If market sentiment rerates multiple lower because of macro risk or a leverage misread, the upside could be constrained.
- Industry-specific liabilities and regulation: the balance sheet includes large noncurrent balances that are related to the company's operating model (e.g., long-duration obligations). Changes to preneed regulation, trust accounting, or litigation outcomes could affect capital flexibility.
Counterargument to the bull case: One could reasonably argue that SCI's leverage and the size of its deferred obligations make the stock more cyclical than the headline suggests. Even if revenues and operating income look steady, a couple of quarters of weak cash conversion (as seen in Q2 FY2025) plus elevated interest costs could force management to slow buybacks and dividends, removing the very catalysts that justify the premium multiple.
What would change my mind
I would turn more cautious if: (1) operating cash flow meaningfully falls below the mid-$200M quarterly run-rate on a sustained basis, (2) management pauses or reverses buybacks/dividend increases citing liquidity stress, or (3) interest expense meaningfully outpaces operating gains and starts to materially compress net income. Conversely, stronger-than-expected cash flow and consistent balance-sheet reductions (decreasing long-term debt and/or other noncurrent liabilities) would make me incrementally more bullish and push my target timeline forward.
Bottom line
SCI remains an attractive trade to capture a combination of steady operating performance and explicit shareholder-return catalysts. The business prints consistent revenue (~$1.06B per quarter recently), converts a lot of that into operating cash, and management is channeling cash toward dividends and buybacks. That said, material leverage and large noncurrent liabilities require disciplined sizing and a clear stop. If you want a trade with income plus upside from buybacks, a disciplined long in the $80-$86 zone with a stop near $74 and targets at $95 and $110 is a reasonable, risk-defined way to play the bull case.
Key data references (from filings)
- Q3 FY2025 (07/01/2025 - 09/30/2025): Revenues $1,058,096,000; Operating income $226,391,000; Net income $117,522,000; Diluted EPS $0.83.
- Operating cash flow Q3 FY2025: $252,280,000.
- Balance sheet Q3 FY2025: Assets $18,361,776,000; Equity $1,567,284,000; Long-term debt $5,029,639,000; Other noncurrent liabilities $11,012,696,000.
- Dividend declared 11/05/2025: $0.34 per share (pay date 12/31/2025).
Disclosure: This is a trade idea, not financial advice. Position size should reflect personal risk tolerance and portfolio constraints.