Service Corporation International

Service Corp International receives a 5-star quantitative star rating, illustrating our stance that this share class offers a compelling opportunity for investors. The stock currently trades at a 6% discount to our quantitative fair value estimate of $81.21 per share, which is reinforced by this estimate's low uncertainty rating.

The firm's favorable dividend structure bolsters our estimated fair value. Dividends represent a stable form of future cash flows returned to shareholders, reducing the perceived risk of a business. For example, the firm's forward dividend yield of 1.9% lies in the top 40% compared with global peers. Expected dividend payments over the coming year relative to the current share price are favorable, which contributes to our view that shares are undervalued.

On a different note, the company's lack of profitability is potentially concerning. Companies with low profitability are often less resilient in recessions and are likely to generate weaker future cash flows for shareholders. The firm's enterprise value to free cash flow ratio of 20.5, a core component of profitability, ranks in the bottom 45% compared with global peers. Although shares look cheap relative to the free cash flow generated by this business, they could represent a value trap. Despite our favorable price/fair value ratio, this characteristic is a negative attribute.

In addition to the aforementioned drivers, our model considers momentum as part of its comprehensive analysis. This share class has outperformed the broader universe over the past year. While we believe the stock is undervalued, this outperformance had a negative impact on our valuation estimate.

The company's narrow economic moat rating suggests it should be able to maintain robust profitability for a decade or longer before competition erodes its advantage. In addition, the company's moderate financial health score is decent and doesn't seriously concern us with regard to financial distress.