When I was a kid, I went to a Catholic grade school. And because our school was affiliated with a church, I volunteered to be an altar boy.#-ad_banner-#

On the surface, it was a great way to make myself look good. I knew my parents would be happy. But in reality, it was just a good excuse to get out of class. I knew that every week, whether it was sunny, rainy, warm or cold, there were going to be a couple of funeral processions that would need altar boys to help celebrate Mass.

Even though being an altar boy at a funeral doesn’t sound like much fun, it was an early lesson about the nature of demand — mortality wasn’t just predictable, it was undeniable.

But looking forward, that undeniable trend is accelerating. With more than 10,000 baby boomers retiring every day, the National Funeral Directors Association projects the U.S. death rate will increase from 8 deaths per 10,000 people to 10 by 2045.  

That is setting the stage for a wave of demand for “death care” products and services. And there is one company ready to cash in.

This little-known market leader is one of the largest death care service providers in North America. It owns more than 1,400 funeral homes and 375 cemeteries in 43 states and eight Canadian provinces. It just announced a major acquisition of its largest competitor that is expected to produce $3 billion in annual revenue. That has driven a 72% gain in just the past two years. Take a look below.

But with the industry in position to benefit from record demand, there should be plenty more to come.

Service Corp. International (NYSE: SCI) is the largest funeral and cemetery services provider in North America with a market cap of $3.9 billion. Even though Service Corp. is already the industry leader, it recently announced a bold move to gain additional market share with a deal to buy its largest competitor, Stewart Enterprises (Nasdaq: STEI), for $1.1 billion.

If the deal goes through, the combined entity is expected to produce close to $3 billion in annual revenue, up from Service Corp.’s $2.4 billion in 2012 while creating a portfolio of 1,653 funeral homes and 515 cemeteries. The acquisition is also expected to produce annual cost savings of about $60 million through operational synergies.

The union with Stewart is a big opportunity for Service Corp. to build on its industry-leading position because the death care industry is highly fragmented, with 86% of funeral homes still privately owned. That enables Service Corp. to gain an advantage over its competition by using its scale to offer better prices and negotiate better deals with suppliers.

The fragmented market also sets the stage for more consolidation in the industry, and Service Corp. is in position to capitalize. In spite of the pending $1.1 billion buyout of Stewart, Service Corp. still has $183 million in cash and equivalents on the balance sheet and should produce more than $400 million in free cash flow in 2014.

In the short run, those strong cash flows will help Service Corp. pay down its debt and interest for the Stewart acquisition. But once Service Corp.’s operating leverage falls back to its historical averages, the bigger company will be a cash flow machine ready to add more facilities and locations to its growing portfolio.

In addition to industry growth and consolidation, Service Corp. is also aggressively attacking one of the highest-growth areas of the death care industry: so-called pre-need sales. This amounts to pre-selling funeral and cemetery arrangements ahead of an actual death and is beneficial because it creates additional earnings transparency, an order backlog and a chance for people to plan ahead as opposed to scrambling to make arrangements during an emotional event.

After investing in new recruiters and trainers to develop this growing channel, recent third-quarter results showed that pre need sales were the best in the company, with pre-need funeral sales up 14% from the previous year and pre-need cemetery sales up more than 16%.

Looking forward, earnings are expected to grow 11% this year, 18% in 2014 and 10% annually for the next five years. Service Corp. also carries a dividend yield of 1.5%.

Risks to Consider: The number of people choosing to be cremated has been rising steadily in recent decades, growing from 10% in 1980 to 42% last year. And even though the long-term trend is strong, death care spending is correlated with consumer confidence and economic growth, so slumps in the wider economy are likely to weigh on the sector.

Action to Take –> Demand for death care products and services is expected to surge in the next 20 years due to demographic trends. As an industry leader, Service Corp. is in position to capitalize. But in spite of the bullish outlook and big gain in its share price over the past two years, Service Corp. still looks reasonably valued, with a price-to-earnings growth (PEG) ratio of 1.75, in line with its 10-year and peer averages. That makes Service Corp. a buy below $20.

P.S. Stocks like Service Corp. are similar to a special group of securities we call “Forever” stocks. These are world-dominating companies that pay investors a fat dividend, dig a deep moat around their business to fend off competitors and buy back massive amounts of stock, boosting the value for the rest of the shares. They’re investments solid enough to buy, forget about and hold — “Forever.” To learn more about these stocks — including some of their names and ticker symbols — click here.