Analysts' Choice: Carnival Cruises To New Highs

7/3/2017


  Recent Price
$66
  Dividend
$1.60
  Yield
2.4%
  P/E Ratio
19
  Shares (millions)
727
  Long-Term Debt as % of Capital
26%
  52-Week Price Range
$67.30 - $42.94

Performance within the S&P 1500 consumer-discretionary sector has been sharply divided this year. Shares of retailers have declined an average of 10% in 2017, as Amazon.com ($990; AMZN) seems intent on taking over the entire industry. The rest of the sector, for now shielded from that threat, has generated a total return of 8%. Carnival ($66; CCL) shares have returned 28%, in line with the average hotel, resort, and cruise-line stock.

With a large swath of the consumer-discretionary sector taking on water, we are optimistic that Carnival's momentum can stay on course. The company posted a solid May quarter, and bookings for each of the next three quarters are near the high-end of historical ranges. Carnival is a Focus List Buy and a Long-Term Buy.

Anatomy of another beat

Per-share profits climbed 6% to $0.52 in the May quarter, exceeding the consensus by $0.05. Revenue, up 6% to $3.95 billion, eased past the consensus of $3.88 billion. Carnival has topped both consensus profit and sales targets in six straight quarters.

Rising unit costs outpaced unit revenue, entirely due to sharply higher fuel expenses. But the share count declined 3.5%, helping to boost per-share profit growth. Cash from operations advanced 2% to $1.92 billion, marking the 14th straight quarter of growth.

Capacity rose 4% last quarter, as Carnival welcomed two new ships to its fleet, including its first vessel specifically designed for the China market. Management says China is an "embryonic market" that could eventually become the world's biggest cruise market. China currently accounts for just 6% of Carnival's capacity.

Management is seeing strong demand for cruises to Cuba. In May, Carnival became the first cruise operator to travel from the U.S. to Cuba in more than 50 years. President Trump's plan to reinstate tougher travel restrictions on Cuba will offer exemptions for airlines and cruise operators, limiting any disruption to Carnival's expansion plans.

For the crucial August quarter, management targets earnings per share of $2.16 to $2.20, implying 13% to 15% growth. The consensus stood at $2.14 per share at the time of the announcement.

For fiscal 2017 ending November, Carnival raised the lower end of its per-share-profit guidance by $0.10; the new range's midpoint of $3.65 projects 6% growth but remains below the consensus of $3.73.

For the first half of fiscal 2017, booking volumes for voyages over the next nine months are running ahead of last year's levels and prices are "well ahead." Although still early, Carnival sees continued growth for bookings and pricing in fiscal 2018.

Conclusion

Despite hovering near an all-time high, Carnival shares earn a Quadrix Value score of 72. At 19 times trailing earnings, the stock trades 13% below its five-year average of 22. If Carnival meets just the lowest analyst profit estimate of $3.60 for fiscal 2017 and its P/E ratio returns to 22, the shares would rally 20% by the end of 2017.

An annual report for Carnival Corp. is available at 3655 N.W. 87th Ave., Miami, FL 33178-2428; (305) 599-2600; www.carnival.com.

CARNIVAL
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
May '17
0.52
vs.
0.49
6%
64.33
-
55.07
19 - 16
Feb '17
0.38
vs.
0.39
4%
57.79
-
49.73
17 - 14
Nov '16
0.67
vs.
0.50
6%
53.27
-
44.11
16 - 13
Aug '16
1.92
vs.
1.75
4%
50.00
-
42.94
16 - 14
           
Year
(Nov.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2016
16.39
3.45
1.35
55.77
-
40.52
16 - 12
2015
15.71
2.70
1.10
54.59
-
41.86
20 - 16
2014
15.88
1.96
1.00
44.44
-
33.11
23 - 17
2013
15.46
1.58
1.00
39.95
-
31.44
25 - 20
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
98
89
72
84
87
98
86

   * Earnings exclude special items.
   † Quadrix scores are percentile ranks, with 100 the best.
   NA Not available.


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