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Carnival's Shares Decline 19% in 1 Year: Can it Recover?

Zacks Equity Research

Carnival Corporation CCL continues to gain from solid booking trend, strategic initiatives, the launch of ships and burgeoning demand for cruise travel. However, its drab guidance for second-quarter and fiscal 2019, and higher costs are major concerns at the moment.

The company expects fiscal 2019 EPS to be $4.35-$4.55, down from the prior $4.50-$4.80. Higher net cruise costs and political uncertainty in Germany and France are also hurting the company’s performance.

Resultantly, shares of Carnival have lost 19.1% in the past year compared with 4.9% decline of the industry. Yet, strong booking trends and a market-leading position helps the company to expect long-term growth.


 

Let us see why investors should hold the stock for the time being.

Strategic Initiatives Improve Revenue Yields

Carnival continues to enjoy ticket price improvements for its North America and EAA brands, with particularly robust ticket price improvements in its core Caribbean deployment. The company continues to drive revenue yield growth by creating demand in excess of measured capacity growth through its ongoing guest experience, marketing and public relations effort. It is particularly positive about its recent innovations like the transformational new ocean experience platform — featuring: Ocean Medallion, a guest experience platform; PlayOcean, a proprietary mobile gaming portfolio; and OceanView, a proprietary digital streaming network.

These new offerings are anticipated to accelerate and expand engagement, and step up the company’s already high guest experience delivery by leveraging its industry-leading scale. Meanwhile, it believes that it is well positioned for continued earnings growth, given the current strength in bookings, particularly in the Caribbean, Alaska, Europe, Asia and Australia along with pricing trends for 2019.

YODA to Drive Revenues

During third-quarter fiscal 2018, Carnival completed the rollout of its new state-of-the-art revenue-management system, YODA. This revenue management system, which has been deployed across six of the company’s brands, will help it garner incremental revenues in the second half of 2019 and beyond. Carnival believes that the implementation of YODA will help it to squeeze additional yield by taking full advantage of the trade-offs. Resultantly, the company expects net cruise revenues to be up 5.5%, with capacity growth of 4.6% and higher net revenue yields of 1% in 2019.

Concerns

Carnival aims to make additional investments this year as its brands identified further revenue generating opportunities. Though these efforts are expected to benefit the company over the long run, these might weigh on near-term margins and earnings. Also, increased investments in advertising and TV programming are adding to its costs.

During the first quarter of fiscal 2019, net cruise costs (in constant dollar) per available lower berth day (ALBD), excluding fuel, increased 0.8%. Gross cruise costs (including fuel) per ALBD, in current dollars, were up 11.1%. During fiscal 2019, the company expects full-year net cruise costs (excluding fuel) per ALBD to be up approximately 0.5%.

Zacks Rank & Stocks to Consider

Carnival currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the Consumer Discretionary sector are SeaWorld Entertainment SEAS, Las Vegas Sands LVS and Hasbro HAS, each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

SeaWorld, Las Vegas Sands and Hasbro’s earnings for the current year are expected to increase 169.2%, 3% and 17.4%, respectively.

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