Is Carriage Services (CSV) Poised to Outperform in a Challenging Sector?

The funeral services sector, often overlooked by mainstream investors, operates in a unique economic niche. While demand is inelastic—driven by demographic inevitability—profitability hinges on operational discipline, pricing power, and strategic agility. Carriage Services Inc. (CSV) has navigated these challenges with a blend of margin resilience, disciplined overhead control, and a robust acquisition pipeline. As the company eyes 2025, the question arises: Can CSV outperform in a sector marked by flat top-line growth and inflationary pressures?

Margin Resilience: A Shield Against Inflation

Carriage Services' ability to maintain and even improve operating margins amid a 4.9% decline in funeral contract volume in 2024 underscores its operational strength. The funeral segment's EBITDA margin rose from 38.3% in 2023 to 39.0% in 2024, driven by a 3.1% increase in average revenue per contract. This pricing discipline, coupled with cost containment, allowed the company to offset volume declines.

The cemetery segment further exemplifies this resilience. A 22.9% surge in preneed interment rights sold and a 7.3% price increase per unit contributed to a 26.7% rise in cemetery preneed sales. These metrics highlight CSV's strategic focus on high-margin preneed contracts, which lock in future revenue and insulate the business from short-term demand fluctuations.

Strategic M&A: Fueling Growth in a Fragmented Market

CSV's acquisition pipeline is a critical catalyst for long-term outperformance. In 2024, the company began targeting “premier locations” to expand its footprint and enhance service offerings. By Q2 2025, it had secured deals expected to add over $15 million in annual revenue and serve 2,600+ families. These acquisitions are not just about scale—they align with the sector's shift toward personalized, tech-enabled services, such as digital showrooms and virtual memorials, which cater to Gen Z and millennial demographics.

The company's debt reduction—from a leverage ratio of 5.1x in 2023 to 4.3x in 2024—has freed up capital for strategic M&A. With $42.1 million in debt paid down in 2024 and an additional $7.1 million in Q2 2025, CSV is positioned to execute high-quality acquisitions without overleveraging. Analysts project that these deals will drive margin expansion and revenue diversification, particularly in high-growth cemetery markets.

Long-Term Catalysts: Demographics and Innovation

The funeral services sector is poised for structural growth. The U.S. population is aging, and cremation rates are rising—projected to jump from 60.5% in 2023 to 81.4% by 2045. Carriage Services is capitalizing on these trends by expanding its cremation services and integrating sustainable options, such as biodegradable urns.

Moreover, the company's cemetery segment, which faced a 0.6% revenue decline in Q2 2025 due to inventory timing, is expected to rebound. Management anticipates that completed construction projects in Q3 2025 will restore growth, with cemetery revenue on track for at least 10% year-over-year expansion. This recovery, combined with a 5.92% CAGR for the sector through 2030, positions CSV to outperform peers.

Valuation and Investor Sentiment

Despite a Q2 2025 EPS miss (actual $0.43 vs. expected $0.75), the stock closed at $46.21—a 1.99% increase—reflecting investor confidence in CSV's strategic direction. The company's GAAP net income surged 85.7% YoY, and adjusted EBITDA guidance for 2025 remains robust at $128–$133 million.

Historical data on CSV's performance following earnings misses provides additional context. From 2022 to the present, the stock has shown a 50.00% win rate over three days, but this declines to 25.00% at 10 days and 12.50% at 30 days. While short-term positive reactions are common, the stock has also experienced a maximum drawdown of -16.37% on day 21, underscoring the risks of prolonged underperformance. Investors should weigh these dynamics against CSV's strong fundamentals and long-term growth drivers.

Management's Confidence: A Key Indicator

CEO Carlos Quezada's emphasis on “strategic execution” and “service excellence” underscores management's confidence in CSV's long-term prospects. The company's focus on deleveraging, cost discipline, and innovation—such as its earned and casket core lines—signals a commitment to margin expansion. Additionally, the planned divestiture of non-core assets in 2025 will further sharpen the company's focus on high-growth opportunities.

Investment Thesis

Carriage Services is uniquely positioned to outperform in a challenging sector. Its margin resilience, strategic M&A pipeline, and alignment with demographic tailwinds create a compelling case for long-term investors. While risks such as macroeconomic pressures and inventory constraints exist, the company's disciplined approach to cost control and pricing power mitigates these headwinds.

For investors seeking exposure to a defensive yet growth-oriented sector, CSV offers a balanced opportunity. With a strong balance sheet, clear growth catalysts, and a management team focused on execution, Carriage Services is well-equipped to navigate the current environment and deliver shareholder value.

Final Verdict: Buy for long-term growth, with a focus on margin resilience and strategic expansion.