Wunderlich Maintains Buy On StoneMor Partners, Says Underlying Trends Support Cash Flow Stability

Wunderlich maintained its Buy rating on StoneMor Partners L.P.

, saying that the underlying trends in mortality rates support a business with greater cash flow stability. According to analyst Liam Burke, StoneMor will see further improvement in cash flow profiles following the normalization of ramp-up in pre-need sales from the Archdiocese of Philadelphia properties. During the second quarter of 2014, the company announced a long-term management agreement through a long-term leasing arrangement for 13 cemeteries from the Archdiocese of Philadelphia. Prior to the agreement, the cemeteries had no pre-need sales program in place. After the closing, the ramp up of pre-need sales created a near-term need for cash. "As pre-need sales normalize, the cash needed to fund the Merchandise Trust will begin to moderate and free up additional cash flow," Burke wrote in a note. In addition, the analyst noted that the current demographic trends support higher overall mortality rates, but the trends are towards a higher percentage of cremations. As a higher percentage of cremations are memorialized, the company has allocated additional cemetery assets to cremation niches. "Cremation niches not only generate strong margins, but drive high returns on cemetery assets," Burke added. Though the company reported distribution coverage below 1.0x for both fourth quarter 2015 and first quarter 2016, Burke said distributable cash flow should see consistent sequential improvement for the balance of 2016. Shares of StoneMor closed Tuesday's regular trading session at $23.58. Burke has a price target of $33.