Carnival Corp Stock Is Cruising with the Wind at Its Back

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Carnival Corp (NYSE:CCL) has proven that it is the best run mega cruise liner around. Since the 1970s, competitors have tried but failed to keep pace with CCL, run by Micky Arison, who inherited the business from his father.

ccl stock carnival stock
Source: Via Carnival

Though Carnival stock is up 29% YTD, it still trades at a discounted multiple to other mega cruise liner peers.

To be fair, it’s been a good couple of years for the cruise liners, with markedly lower fuel costs and increase in their major demographic, which is to say, older. It’s one of the few businesses that can say it’s really been benefitting from multiple tailwinds.

And then there’s China and the outbound Chinese tourist with plentiful amounts of cash to spend. Carnival is all over that as well.

So, from my vantage point, CCL not only has several growth drivers powering it along but also is the best run cruise liner of its size out there. It deserves to trade at least at a slight premium to peers.

CCL Goes Modern

Consumer facing businesses are always looking for ways to maintain their “cool” factor, and there’s no better way than with tech, specifically wearable tech. Carnival will roll out a wristband with an app that, it says, will help improve the guest experience. The wristband provides itinerary information, tracks guest preferences and suggests activities based on what it learns from each passenger.

Carnival made the announcement in January, and, while the rollout is taking longer than initially expected, I would rather they take longer and get it right the first go around. Nothing upsets passengers like a tech fail. And for a business that is all about having fun and letting loose, customer satisfaction is key. CCL plans to start with a beta test on a Princess Cruises ship this month and a couple more ships the following year.

Obviously a wristband, no matter how hip, will not in and of itself drive passenger volumes to cruise more, but it goes to show that CCL hasn’t become a stodgy $48 billion company.

They’re still innovating and looking for ways to attract new cruisers and repeat cruisers as well as tuning into the younger demographic.

If all goes well, and the wearable watch-like device can create a more customized and personal experience, I could see providing a real boost in the coming quarters with pre-bookings and passenger loads.

CCL Markets to China

There isn’t a leisure business that isn’t trying to get a piece of the Chinese tourist market. Carnival already has the Majestic Princess up and running. This ship is truly the first of its kind, built specifically for the Chinese market.

Carnival hasn’t given guidance for the specific contribution it expects, but with that first mover advantage, things are looking good as Chinese tourists begin to familiarize themselves with cruising as a concept.

 

Anecdotally, everyone and anyone in cruising is quite positive on China. All of the major liners as well as the smaller players are looking to repurpose ships and/or build new ones to capture a piece of the pie. And with CCL’s existing network of itineraries and relationships with travel agents, there is a lot of infrastructure (not to mention sophistication) to leverage the selling process.

The Bottom Line on CCL

While next quarter, I would expect to see a hit from the hurricanes, I wouldn’t be perturbed by any short-term stock price fluctuations.

If last quarter is any indication, momentum is strong, and these weather-induced events won’t be enough to stop continued EPS growth (last quarter adjusted EPS grew almost 20%). At worst, there will be some slowdown, which the long term investor won’t be concerned over.

Ultimately gross revenue yields are healthy and there is room to further increase on a net yield basis. They grew it 5.1% during the third quarter, beating guidance, and all things equal they will keep beating expectations ahead.

As of this writing, Luce Emerson did not hold a position in any of the aforementioned securities.

 


Article printed from InvestorPlace Media, https://investorplace.com/2017/11/ccl-stock-cruising-wind/.

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