➡️ This is a step-by-step stock review to determine if Security National (SNFCA) stock is a good buy. In this article, we’ll help you understand the company, where the company is going, the competition, and the leadership. This way you can make a more confident investment decision.
Security National Financial Corporation is a financial institution with three main business segments: life insurance, cemetery and mortuary, and mortgage loans. They were founded in 1965, headquartered in Salt Lake City, UT, and have about 800 employees.
Table of Contents
- Step 1: Tykr Rating
- Step 2: Security National Financial Business Model
- Step 3: Security National Financial News
- Step 4: Security National Financial Competition
- Step 5: Security National Financial 4Ms
- Step 6: Is Security National Financial stock a good buy?
Step 1: Tykr Rating
➡️ Goal: When you look at a stock, the first step is to look at the financials. Fortunately, Tykr does this for us automatically. The higher the score, the stronger the financials and the safer the investment. The higher the MOS, the higher the potential returns you can make.
- Summary: On Sale
- Score: 56/100
- MOS: 90%
- Share Price: $6
- Fair Value: $31
Step 2: Security National Financial Business Model
How does Security National Financial make money?
➡️ Goal: It’s important to know how a company makes money. A mature business model has multiple streams of revenue which allow the company to weather downturns in the economy.
Security National Financial has three main business segments.
- Life Insurance – This includes life insurance, funeral plans, accident insurance, annuities, and diver’s accident policies.
- Cemetery and Mortuary – This includes cemetery and mortuary locations in Utah, California, and New Mexico.
- Mortgage Loans – They sell mortgage loans to customers in Utah, Texas, Nevada, and Florida.
Here is a breakdown of each revenue stream:
Life Insurance
Life insurance is the most profitable segment of the company. Here is a breakdown of how life insurance works.
The two most common life insurance policies include:
- Whole life – This policy lasts your entire life. No matter your age when you die, the death benefit will be paid to your beneficiaries.
- Term life – This policy lasts a limited term such as 15, 20, or 25 years. The death benefit is only paid to your beneficiaries if you die within the set term. If you outlive your term or in other words, die after the term of let’s say 25 years, the death benefit is not paid out.
Life insurance companies make money in two ways:
Premiums – Like any insurance product, customers pay a monthly premium. This creates a recurring revenue stream for the company, similar to a SaaS (Software as a Service). This is a highly lucrative model. To determine the price of premiums, actuaries are hired to conduct advanced statistical analysis to ensure the premiums earned are more profitable than the death benefit policies the company is required to pay. In other words, life insurance companies need to make sure they are earning more from premiums than they are paying out when people die. In the case of term life insurance, a lot of people will pay premiums over 15, 20, or 25 years and then outlive their policy. This means the life insurance company collected payments over those years and never had to pay a penny of a death benefit. That’s why whole life insurance policies are typically a better investment.
Reinvesting Premiums – Although the monthly income from premiums is lucrative, the reinvestment of those premiums is substantially more lucrative. A portion of the premium payments paid to the company are reinvested into bonds, stocks, and sometimes real estate. This creates a compounding effect where “money is making more money.”
Mortgage Loans
Operating as a bank is typically a smart business model. You rarely want to be in a position where you owe people money. It’s much wiser to flip that equation so people are owing you money. In this circumstance, mortgage loans are a straightforward strategy for generating recurring revenue. Security National Financial will provide mortgage loans to consumers and consumers pay their mortgage principal plus interest every month.
Cemetery and Mortuary Services
Although the cemetery and mortuary services may appear a little odd, it’s an excellent complement to the life insurance and mortgage loan business segments. All products are easy to cross-sell from one to the next. Those looking to buy a home should also look to protect their family’s assets with life insurance. Those looking to buy life insurance should also learn what funeral services are available, especially when you are estate planning.
It’s a smart business model when you can bring customers into the ecosystem and offer other complimentary products and services.
Cemeteries and Mortuaries make money in the following ways.
- Gravemarkers or headstones
- Burial plots
- Construction of mausoleums
- Space in a columbarium (a building that holds urns containing cremated remains)
- Burial vaults
- Digging and filling of the burial hole
- Opening and sealing of a mausoleum
- Sealing a columbarium
- Placing of gravemarkers or headstones
- Post-burial opening and re-closing of graves
- Cremation services
- Funeral services
Here are some interesting facts on funeral homes, as stated in this article from bizfluent.com.
- In 1960, 3% of those who died in the US, were cremated.
- In 2016, 50% of those who died in the US, were cremated.
- In 2016, the average burial cost in the US was about $7,300.
- In 2016, the average cremation cost in the US was about $1,650.
It’s important to highlight that as the amount of land available for graveyards continues to decrease, the cost of burials continues to increase.
Is a cemetery or mortuary a profitable business model?
There are high costs with a cemetery and mortuary business model including the following:
- Undertakers
- Landscapers
- Security officers
- Security cameras
- Equipment
- Commercial office rent or mortgage
This article from 4bsf.com states the following statistics regarding profit margins.
- The average gross profit margin for one burial service can range between 30% and 60%
- The average net profit margin of the funeral home business model is 6% to 9%.
By comparison
- The average net profit margin of a manufacturing company is 7%.
- The average net profit margin of an eCommerce company is 10%.
- The average net profit margin of a SaaS is 20%.
Step 3: Security National Financial News
➡️ Goal: It’s important to highlight important company-specific news as well as industry-specific news over the last month and year. We don’t need daily news on a company to make buy or sell decisions because we’re investors, not traders. Overall, we want sufficient news to understand where a company and industry are heading over the next year or few years.
This article from finance.yahoo.com provides states that as of 2022, the funeral services market is $18B which is $2B higher than 2021 and the highest growth the industry has seen since 2015. Although people are living longer, there is an increase in deaths from accidents, suicide, and other unnatural causes. This may sound grim but it highlights the increasing demand for funeral services.
This article from finance.yahoo.com talks about Security National’s focus on ESG, specifically the E (Environment). They built a new corporate campus in Salt Lake City with a lower ecological footprint that will save hundreds of thousands of gallons of water per year.
This article from ibisworld.com states the life insurance and annuities industry is approximately $1.2T in 2022 with an annual growth rate of 8.6% alone, compared to an annual growth rate per year of around 4.8% between 2017 and 2022.
For the latest news on this stock, please login to Tykr.
Step 4: Security National Financial Competition
➡️ Goal: It’s important to understand who the competitors are and how their financials rank against this company. Try to find 5 other competitors to rank against based on Score. The best way to find competitors is to Google “XYZ competition” and replace XYZ with the company name. You can also go to Tykr and click on the “Similar Stocks” tab on each stock to see similar companies in the same industry.
Security National Financial (SNFCA)
- Summary: On Sale
- Score: 56/100
- MOS: 90%
- Share Price: $6
- Fair Value: $31
- Revenue: $470M
National Western Life Group (NWLI)
- Summary: Watch
- Score: 50/100
- MOS: 38%
- Share Price: $254
- Fair Value: $393
- Revenue: $824M
CNO Financial Group (CNO)
- Summary: Watch
- Score: 11/100
- MOS: 65%
- Share Price: $22
- Fair Value: $48
- Revenue: $4.12B
American Equity Investment Life Holding Company (AEL)
- Summary: On Sale
- Score: 67/100
- MOS: 90%
- Share Price: $45
- Fair Value: $230
- Revenue: $4B
MetLife (MET-PA)
- Summary: Watch
- Score: 34/100
- MOS: 90%
- Share Price: $21
- Fair Value: $110
- Revenue: $66B
Primerica (PRI)
- Summary: Watch
- Score: 50/100
- MOS: 0%
- Share Price: $139
- Fair Value: $140
- Revenue: $2.7B
Step 5: Security National Financial 4Ms
➡️ Goal: All of our homework on this company leads up to the 4M checklist. A lot of investors only look at the numbers. Yes, it’s important to look at the first M (MOS) which is the math part of investing but it’s also important to look past the numbers and also look at the business, the competition, and the management. If all 4Ms pass, we should have high confidence in buying this stock.
❌ MOS: Security National Financial’s are close to achieving a Summary of On Sale. The MOS looks fantastic with a 90% but the score is 44/100, slightly lower than the 50 or higher we like to see. When you take a look at the financials, you can see the quarterly Assets, Liabilities, and Debt are flat while the Equity is declining. We want to see Assets and Equity increase. This is why the score is less than 50.
✅ Meaning: Life insurance is a highly lucrative industry and it’s important to highlight the substantial demand in 2022. The mortgage loan and funeral service segments of the company are both nice to have but the big revenue generator is life insurance.
❌ Moat: The issue is the competition. If you were to simply Google “life insurance company”, you’ll see hundreds of options and when it comes to the products, they are all very similar. The difference between one life insurance company to the next isn’t necessarily the premiums you pay or the death benefit your beneficiaries receive, it’s the customer service. In this circumstance, I would say there isn’t a large moat.
❌ Management: Scott Quist has served as Chairman and CEO since 2012. He has also served as President since 2002. He started his career in 1980 at Peat, Marwick, Mitchell & Co as a tax specialist. Thereafter we worked as Treasurer and Director of The National Associate of Life Companies. Thereafter he worked as a Director and President of the National Alliance of Life Companies. Although Quist’s background looks great, the Glassdoor ratings tell a completely different story. The Glassdoor rating is 2.8 and the CEO approval is 0%. I took a look at some of the comments from employees and they include “Don’t value employees”, “Good ol’ boys club”, “they don’t respect women in the workplace”, “underpay compared to competitors”, “you are bullied to harras customers to buy more products”. Overall, I’ve seen a lot of bad Glassdoor ratings but this is a new low. If I were an employee, I would immediately start looking for another job.
If you’re interested, you may complete your own 4M checklist on this stock or other stocks by logging into Tykr.
Step 6: Is Security National Financial stock a good buy?
No. 3 of the 4Ms fail. Although life insurance is highly profitable, there are too many competitors in this industry. On top of that, management is in need of some changes. The Glassdoor ratings are horrible and may be limiting the quality of talent that is joining the company.
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The Summary, Score, and MOS of this stock may have changed since the posting of this review. Please login to Tykr to see up-to-date information.
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