The InvoCare Limited (ASX: IVC) share price hit a 52-week low today, so it's worth asking if the leading funeral operator in Australia is a buy today.
Here are my bull and bear reasons:
Bull case
InvoCare operates in a long-term growth industry. As morbid as it sounds, the number of people dying each year in Australia is increasing due to Australia's ageing (and growing) population.
According to numbers produced by the Australian Bureau of Statistics 'death volumes' are expected to grow by 1.4% per annum between 2016 to 2025 and then increase by 2.2% per annum from 2025 to 2050.
InvoCare has different brands, like White Lady Funerals and Value Cremations, to appeal to customers with different budgets. It should be able to capture a lot of the future industry growth.
I also like that the company has paid out a growing dividend each year since 2006. It currently has a grossed-up dividend yield of 5.23%.
Bear case
One of the main reasons why the share price has fallen from $17.98 to today's $12.57 is that the UK equivalent of InvoCare has recently had to reduce prices due to competitors. At the moment InvoCare's only real competitor is Propel Funeral Partners Ltd (ASX: PFP) but there could be others in the future.
InvoCare has also said that this year's operating profit won't be much different to last year's because it is heavily investing to redevelop its sites to cater for the changing demands. There are renovating costs to this and closing down the site for a while loses revenue.
The third reason to be bearish on InvoCare is rising interest rates in the US. Defensive stocks look a lot less attractive when US bonds offer a higher yield than they used to.
Foolish takeaway
I think InvoCare is worth considering for long-term investors. It is currently trading at 22x FY18's estimated earnings, which I think is a reasonable price to pay for such a defensive business.
