CSV — Carriage Services, Inc. · 2026-09-09 · Verdict: WATCH · Conviction 2

Price $32.99 (screen row, 2026-09-08 run; no live price) · Mkt cap $524M · EV $1,061M · EV/normalised EBIT 10.8x · FCF yield 8.6% (2026 guided adjusted FCF midpoint) · Net debt $(537)M · ADV $5.4M Sources read: 10-K 2026-02-26 (Items 1, 1A, 7), 10-Q 2026-08-06, DEF 14A 2026-03-27, 8-Ks 2026-05-06 (ATM), 2026-08-05 (Q2 results), 2026-08-14 (officer resignation), Form 4s (12 of 36 in 12m), Q1 2026 call transcript, Q2 2026 press release.

Desk stats - Revenue trend: FY2025 revenue $417.4M, up 3.3%, driven by price not volume: average price per preneed interment right +8.1% and average revenue per funeral contract +2.6% against funeral contract volume −1.3% (10-K 2025, Item 7). Q2 2026 revenue $102.9M, up 0.8%; comparable revenue fell to $88.8M from $90.3M while acquisitions added $3.9M and financial revenue grew 14.0% (8-K 2026-08-05, Trend Report). - Normalised after-tax operating profit: trailing twelve month GAAP operating income is $91.3M (FY2025 $97.7M less H1 2025 $55.6M plus H1 2026 $49.2M). Adjustments: add back the H2 2025 net loss on divestitures and impairment of $6.1M (FY2025 line $0.4M less the H1 2025 net gain of $5.8M) and the H1 2026 net loss and impairment line of $0.4M (10-Q 2026-08-06; 8-K 2026-08-05). Normalised operating income $97.8M against $91.3M GAAP; taxed at 25%, $73.4M. - EV / normalised after-tax profit: 14.5x. EV from the 30 June 2026 balance sheet: current debt and leases $4.7M plus long-term debt $526.0M plus non-current finance leases $9.0M less cash $2.6M gives net debt $537.2M, plus market cap $524.0M (15,882,296 shares at $32.99). Operating leases of $9.5M excluded. - Leverage: net debt $537.2M over 2026 guided adjusted consolidated EBITDA of $135-140M is 3.9x. Management reports a bank leverage ratio of 4.0x at Q2 2026 against a stated target range of 3.5x to 4.0x (8-K 2026-08-05; Q1 call, CFO). - Is the growth sustainable? Not organically. Comparable revenue fell 1.4% in H1 2026 and comparable funeral EBITDA fell 7.6%; the consolidated line was held up by acquisitions and by trust and insurance-commission income. Revenue guidance was cut to $435-445M from $440-450M, EPS guidance held. - What the screen got wrong: the debt. The screen tagged long-term debt from us-gaap:LongTermDebtNoncurrent at $5.4M and net debt at $2.9M. Actual debt at 31 December 2025 was $532.9M excluding leases and issuance costs: $400.0M of 4.25% Senior Notes due 2029, $126.7M drawn on the Credit Facility and $6.2M of acquisition debt (10-K 2025, Item 1A). That turns 0.0x net debt/EBITDA into 3.9x and 7.1x EV/after-tax profit into 14.5x. CSV should never have ranked tenth.

1. What the business actually does

Carriage operates 155 funeral homes in 24 states and 28 cemeteries in 9 states, funeral about 65% of revenue and cemetery 35% (10-K 2025, Item 1). About 16% of funeral services performed are funded by preneed contracts and about 64% of cemetery operating revenue comes from preneed property sales, so much of each year's revenue was sold years earlier and sits in a backlog of 93,286 preneed funeral and 65,681 preneed cemetery contracts. Trust assets are managed largely in-house for a fee. Margins are genuinely high: field EBITDA margin was 43.9% in Q2 2026 and the "financial" line (trust earnings and insurance commissions) ran at 93.2%.

2. Why it is mispriced: the edge case

There is none I can name. The stock is 36% off its 52-week high and down 23% over six months for reasons visible in the filings: mortality has normalised, comparable funeral contract volume fell 4.7% in H1 2026 (10-Q 2026-08-06), and the business carries 4.0x bank leverage into that decline. At 9.6x the midpoint of guided adjusted EPS of $3.35-3.55 it is not expensive, but 14.5x EV to normalised after-tax profit and 7.7x EV to guided adjusted EBITDA is an ordinary price for an ordinary-growth consolidator, not a mispricing. No edge case caps the verdict at WATCH.

3. Unit economics and growth

The mix inside the flat top line is the story. In Q2 2026 comparable funeral revenue fell 2.4% and comparable funeral EBITDA margin fell 130 basis points to 36.5%; for H1 it fell 180 basis points to 39.1% on higher salaries, G&A and promotional spend (10-Q 2026-08-06). Cemetery comparable margin improved 90 basis points in H1 to 44.0%, but units are shrinking: preneed interment rights sold fell 12.7% while average price rose 16.5%. That price gain is partly mix and carries a cost, as cemetery property amortization rose 27% in H1 on "a higher mix of mausoleum property sales, which carry significantly higher associated property costs" (10-Q 2026-08-06). Financial revenue contributed $8.7M of the $33.1M of Q2 consolidated EBITDA and depends on trust returns that fell from 17-20% in 2023 to 6.1-6.6% in 2025 (10-K 2025, Item 1A). Cash conversion is mediocre for the margin: FY2025 CFO $60.7M less capex $20.6M is $40.1M of free cash flow on $97.7M of operating income. H1 2026 adjusted free cash flow was $13.8M against $20.3M a year earlier, and the $40-50M full-year guide was held only after capex guidance was cut from $25-30M to $20-25M.

4. Balance sheet and capital allocation

Goodwill of $428.7M exceeds total equity of $279.4M, so tangible book is negative. The Senior Notes run to May 2029, removing near-term refinancing risk, but interest cost $28.4M in 2025. The Credit Facility carries a maximum Total Leverage Ratio covenant tested quarterly, breach of which is an immediate default (10-K 2025, Item 1A). Against that, on 6 May 2026 the company put in place a $100M at-the-market equity program with fees of up to 3.0% of gross proceeds (8-K 2026-05-06), equal to 19% of the market cap, while $48.9M of buyback authorization has been unused since 30 June 2022 (DEF 14A 2026). Management describes target acquisition multiples of "6x to 8x EBITDA" (Q1 call, President); its own equity trades at 7.7x EV to guided adjusted EBITDA, so issuing stock to buy those assets is value-neutral before fees. Insiders hold 2.7% including options, with no open-market purchases in the 12 Form 4s parsed (all 16 rows grants); the CEO sold 4,250 shares in August 2025 on a late filing (DEF 14A 2026).

5. Management: what they said vs what they did

In Q1 management held the full-year outlook and predicted volume would "come back" over two to three quarters (Q1 call, CEO); by Q2 they cut revenue guidance but held EBITDA, EPS and free cash flow, consistent with the cost control they claim. All NEO bonus is tied to an adjusted consolidated EBITDA growth target with no discretionary component since 2024 (DEF 14A 2026), but that is exactly the metric an acquirer funded with issued equity can hit without creating per-share value. The CIO resigned on 13 August 2026 mid-way through the Trinity and Velocity systems rollout (8-K 2026-08-14).

6. Valuation

Base: volume normalises, 2026 adjusted EPS lands at the $3.45 midpoint and 2027 reaches $3.62 on 5% growth; 11x gives $40, plus $0.45 of dividends, about 22% total return. Bear: mortality stays soft, comparable funeral volume falls 4% in 2027 with another 150 basis points of margin given back, adjusted EPS $3.00, leverage through 4.0x forcing $60M of ATM issuance at $30 (11% dilution), 8x multiple: $24, down 27%. Bull: volume normalises and acquisitions add $15-20M of revenue at 32% margins, 2027 adjusted EPS $3.95, leverage 3.5x, 13x: $51, up 55%. At 50/30/20 the weighted value is $37, about 13% above the price, thin compensation for 4x leverage. Reverse DCF: an EV of $1.06B on $73M of normalised after-tax operating profit is a 6.9% unlevered earnings yield, so at a 9% cost of capital the price implies roughly 2% perpetual growth in after-tax operating profit, about the price escalation being achieved now with nothing from volume and nothing from acquisitions net of the capital used to buy them.

7. Catalysts and timeline

Q3 results in early November test the CEO's statement that "July funeral volume trends are encouraging" (8-K 2026-08-05). Acquisition closings were guided to the back half of 2026 and into 2027, which will show whether the ATM is used and at what price. The February 2027 full-year report sets the deleveraging path.

8. Risks and pre-registered kill criteria

1. Comparable funeral contract volume down more than 3% year over year in both Q3 and Q4 2026, making the volume decline structural rather than a flu-season comp.
2. Bank leverage ratio reported above 4.0x at any quarter end, breaching management's own stated ceiling.
3. More than $25M drawn under the ATM at an average price below $40, with the buyback still untouched.
4. Comparable funeral EBITDA margin below 36.0% for two consecutive quarters (Q2 2026: 36.5%).

9. Verdict and one-paragraph summary

WATCH, conviction 2. Carriage is a good business at a fair price that the screen flagged only because of a bad debt tag: the XBRL feed reported $5.4 million of long-term debt when the company carries $532.9 million, so the true EV is $1.06 billion, not $527 million, and the multiple is 14.5x normalised after-tax operating profit rather than 7.1x. What survives that correction is a 44% field-margin deathcare operator with a large preneed backlog at 9.6x guided adjusted EPS and a 1.4% dividend, whose organic volume is falling (comparable funeral contracts down 4.7% in H1 2026, comparable revenue down 1.4%) and whose reported growth comes from price, acquisitions and trust income rather than the underlying business. It carries 4.0x bank leverage against management's own 3.5-4.0x ceiling, negative tangible book, and a fresh $100 million ATM equal to 19% of the market cap while $48.9 million of buyback authorization has sat idle since 2022, a stance that says management values its own stock below the assets it wants to buy at 6-8x EBITDA. There is no identified edge case, so this is a watch item and not an idea: what would change it is two quarters of comparable funeral volume back to flat or better with leverage below 3.5x, which the November and February reports will settle.

Research for discussion, not investment advice. Positions and sizing are the reader's decision.