"As the only publicly-traded firm in the death care business structured as a tax-advantaged MLP, StoneMor Partners (NASDAQ: STON) may be one of the few plays on both death and taxes," says Bill Martin.
In a somber pronouncement in his BullMarket.com, he states, "Let's face it, with the Baby Boom generation aging, death could be a real growth industry over the next 20 years or so."
"The Levittown, Pennsylvania-based partnership's payout is presently yielding close to 20% at current levels as the stock is trading at about half of its peak valuation.
"StoneMor owns and operates 230 cemeteries and 59 funeral homes in 27 states and Puerto Rico. Its cemetery products include: burial lots, lawn and mausoleum crypts, burial vaults, caskets, memorials, and all related installation services.
"As with the case with MLPs generally, StoneMor grows by enlarging its asset base, which it accomplishes principally through the accretive acquisition of additional cemeteries and funeral parlors.
"The company bought 45 cemeteries and 30 funeral homes in December 2007, which has led to strong growth in cash flows through the first three quarters of this year.
"The company announced its Q3 results on November 10th. Revenues increased by 29.4%, to $45.8 million. It was the third-consecutive quarter of year-over-year revenue growth in excess of 17%.
"Operating metrics for the company's core businesses were strong. The company writes contracts with many clients before they need its services. The number of contracts it signed jumped to 19,953 in Q3, up from 15,281 a year ago.
"The company said its backlog stood at $217.8 million. The company also said it has seen little impact on its operations from the economic downturn.
"As a master limited partnership, StoneMor may not have quite the same growth visibility as an energy MLP, but the actuarial tables are working in its favor.
"Funeral homes and cemeteries are still a fragmented business nationally, so their should be plenty of opportunities to add to the company's asset base through targeted acquisitions.
"Overall, StoneMor looks like an attractive story for income-oriented investors. Comparisons will be tougher next year without additional acquisitions, and the dividend increases might have to be tempered, but a 20% payout is solid.
"Note that the stock is lightly traded and the bid/ask spread is fairly large, so we would only recommend interested investors only use limit orders."
