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Carnival Gains on Solid Booking Trend & Strategic Efforts

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Shares of Carnival Corporation & Plc CCL continues to benefit from solid earnings and revenues surprise history, booking trend and strategic efforts. Further, the company’s robust fiscal 2020 guidance instills investor optimism in the stock. In the past six months, the company’s shares have gained 12.8%, compared with the industry’s rally of 6.3%. However, voyage disruptions thanks to bad weather, ship delivery delay and the U.S. government's policy change on travel to Cuba are likely to hurt its performance. Let’s delve deeper.

Growth Drivers

The company’s solid earnings and revenues trend has impressed investors. Carnival reported better-than-expected fourth-quarter fiscal 2019 results, wherein both earnings and revenues surpassed the consensus mark for the fourth straight quarter. In the fiscal fourth quarter, it reported adjusted earnings of 62 cents per share, surpassing the Zacks Consensus Estimate of 51 cents. Revenues of $4.78 billion outpaced the consensus mark of $4.6 million by 3.8% and improved 6.7% year over year. This upside can be attributed to strength in passenger tickets, onboard and other, and tour and other businesses. The company expects adjusted EPS of $4.30-$4.60 for fiscal 2020. Notably, it reported adjusted earnings of $4.40 per share in the prior-year quarter.

Carnival continues to introduce new flagships to form additional demand creation opportunities. The company has 18 new ships scheduled to be included in its portfolio of leading global cruise brands between 2018 and 2022. During third-quarter fiscal 2018, the company finalized contracts for two more next-generation ships powered by LNG to be delivered in 2023 and 2025. Notably, order for LNG powered ship has increased to 11.

Moreover, Carnival has adopted a strategy to grow beyond familiar itineraries and capitalize on new markets. The Asian source market for cruises is expected to grow significantly, as it becomes more consumer-driven. The company is particularly optimistic about growth prospects of the Japanese and Australian markets. By 2020, China’s cruise market is projected to grow to 4.5 million passengers, up from 1 million in 2015, per data from the Chinese Ministry of Transport. Also, by 2030, China is expected to become the world's second-largest cruise market following the United States.

Meanwhile, Carnival 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.



The Trump administration's policy change on travel to Cuba is a cause of concern. Travel ban to Cuba will have a huge impact on the cruise industry. In fact, the company expects voyage disruptions owing to bad weather, ship delivery delay and the U.S. government's policy change on travel to Cuba to impact fiscal 2020 earnings by 12-17 cents.

Carnival intends to make additional investments this year as its brands have identified new revenue-generating opportunities. Though these efforts are expected to benefit the company over the long run, these are likely to weigh on margins in the near term. Moreover, increased investments in advertising and TV programming are adding to costs. Per ALBD, in fiscal 2020, net cruise costs (excluding fuel) are expected to increase 5% from the prior-year reported figure, at constant currency. In fourth-quarter fiscal 2019, net cruise costs per available lower berth day (ALBD), excluding fuel, increased 2.6% from the prior-year quarter.

Zacks Rank & Stocks to Consider

Carnival currently has a Zacks Rank #3 (Hold). Some better-ranked stocks worth considering in the leisure space include Johnson Outdoors Inc. (JOUT - Free Report) , Vista Outdoor Inc. VSTO and YETI Holdings, Inc. YETI. All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Johnson Outdoors and Vista Outdoor have surged 31% and 19%, respectively, in the past three months.

YETI Holdings has beat estimates in the trailing four quarters by 51.8%, on average.

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